Access Care, Inc. v. Sten-Barr Network Solutions, Inc.Access Care, Inc. v. Sten-Barr Network Solutions, Inc.
Opinion
Defendant, Sten-Barr Network Solutions, Inc. (“Sten-Barr”), moves pursuant to Federal Rule of Civil Procedure 12(b)(3), to have the complaint of plaintiff/debtor, Access Care, Inc. (“Debtor”), dismissed based upon the forum selection clause (“Forum Selection Clause”) contained in the parties’ contracts. 1 In the alternative, Sten-Barr seeks to have the adversary proceeding transferred to Bre-vard County, Florida.
Upon consideration, Sten-Barr’s request for dismissal shall be denied. Its request for transfer shall be granted albeit not to its requested forum. This proceeding shall be transferred to the federal district court in Hillsborough County, Florida which is located in Tampa. Hillsborough
Background
When Debtor was in business, it sold and/or leased products and goods, such as beds, bedding and other rehabilitation hardware, that were used by nursing home facilities and hospitals. Complaint ¶ 8. While in business, Debtor entered into seven agreements with Sten-Barr to act as its sub-distributor. Id. ¶¶ 9-10, 14-15, 19-20, 24-25, 29-30, 34-35, 39-40. Debtor entered into six of these agreements (the “Six Agreements”) between February of 2002 through June of 2003; it entered into the seventh agreement (the “Seventh Agreement”) at some unspecified time. Id. All Six Agreements contain the following provision:
Attorney’s Fees — Litigation: In the event that any party hereto institutes a legal action (at law and/or in equity) to enforce any provision of this Agreement, the prevailing party shall be entitled to recover from the other party any costs incurred, including reasonable attorney’s fees, both at trial and appeal. The jurisdiction and venue for purposes of this Agreement shall be Hillsborough County or Brevard County, Florida, at the sole discretion of Sten-Barr Network Solutions, Inc.
Id., Exhibits A through F (emphasis added). The Forum Selection Clause limits the location at which a lawsuit under the agreements can be maintained to two counties in Florida, namely Hillsborough or Brevard Counties. As the clause is worded, it is within Sten-Barr’s “sole discretion” to choose between these two counties. Moreover, because the clause does not specify whether suit must be brought in state or federal court, it is also within Sten-Barr’s “sole discretion” to choose to litigate in state or federal court. 2 However, since there is no federal court located in Brevard County, the only federal court in which this proceeding could be litigated in compliance with the Forum Selection Clause is in Hillsborough County.
In June of 2004, the parties terminated their agreements. Transcript at 9. Prior to the terminations, Sten-Barr “failed and refused” to pay Debtor for certain amounts due and owing thereunder. Complaint ¶¶ 13, 18, 23, 28, 33, 38, 43. Nevertheless, Debtor contends that the parties terminated the agreements for reasons unrelated, or at least not wholly related, to Sten-Barr’s failure or refusal to pay.
3
After the terminations, Debtor continued providing certain products and goods to Sten-Barr’s customers at Sten-Barr’s re
On August 6, 2004, Debtor filed a Voluntary Petition under Chapter 11 of the Bankruptcy Code. 5 Complaint ¶ 5. Thereafter, Debtor continued providing certain products and goods for Sten-Barr; however, Sten-Barr continued to fail and refuse to pay Debtor for amounts due and owing.
Debtor’s confirmed Chapter 11 plan of reorganization is a liquidation plan.
6
See
Debtor’s Modified First Amended Chapter ll Plan of Reorganization (“Plan”) ¶ 5.8.
7
Pursuant to the terms of its Plan, Debtor sold certain assets which were warehoused in Pittsburgh and Philadelphia for approximately $408,000.
See
Order Approving Debtor’s Motion for Sale of Debtor’s Assets Free and Clear of Lien and Encumbrances, dated November 30, 2004; Order Approving Motion of Debtor for the Entry of an Order Authorizing the Sale of Certain Portions of the Debtor’s Assets and Approval of the Auction of Concentrators Free and Clear of Liens and Encum
In addition to the sales of its assets, Debtor’s liquidation Plan provides for the collection of account receivables, including those allegedly owed by Sten-Barr. See Plan ¶ 5.2; Disclosure Statement in Respect of the Debtor’s First Amended Chapter 11 Plan of Reorganization ¶ 11.4
On or about August 23, 2005, Debtor commenced this adversary proceeding against Sten-Barr to collect account receivables. Debtor’s Complaint alleges the following two causes of action: (1) breach of contract; and (2) unjust enrichment/quantum meruit.
In Count I, Debtor alleges that Sten-Barr breached the parties’ seven agreements by, “among other things, failing to pay” the account receivables which it owes and that, “as a direct and proximate cause” of the breaches, Debtor has suffered damages in the amount of $277,000. In addition, Debtor alleges, based upon the parties’ agreements, that the prevailing party in the litigation is entitled “to ... costs incurred, including reasonable attorney’s fees.” Complaint ¶ 49. Debtor seeks damages in the amount of $277,000 plus interest and costs, including reasonable attorney’s fees.
In Count II for “Unjust Enrichment/Quantum Meruit,” Debtor alleges that: (1) Sten-Barr has retained valuable benefits from Debtor; (ii) it would be inequitable to allow Sten-Barr to retain such benefits without compensating Debtor for them; and (iii) Debtor has suffered damages in the amount of $277,000 which, notably, is the same amount of damages alleged in Count I. 8 In this count, Debtor seeks judgment against for $277,000.
Arguments
The parties agree that the general rule established by the Supreme Court in
The Bremen ... rule is that a forum selection clause is presumptively valid and will be enforced by the forum unless the party objecting to its enforcement establishes (1) that it is the result of fraud or overreaching, (2) that enforcement would violate a strong public policy of the forum, or (3) that enforcement would in the particular circumstances of the case result in litigation in a jurisdiction so seriously inconvenient as to be unreasonable.
Debtor contends that the Forum Selection Clause should not be enforced under the M/S Bremen rule because the second and third exceptions apply here. This Court disagrees. However, rather than dismissing this proceeding based on the Forum Selection Clause, this Court shall utilize its discretion to transfer the proceeding to the district court in Hillsbor-ough County.
(I) The Second Exception of the M/S Bremen Rule
Debtor argues that enforcement of the Forum Selection Clause would violate the strong public policy which exists in favor of centralizing all proceedings in a bankruptcy case in the bankruptcy court where
While there is undoubtedly a public policy which exists in favor of “facilitating the collection and distribution of debtor estates,”
Coastal Steel Corporation, supra,
Even if some of Debtor’s claims are within the “core” jurisdiction of this Court, they are inextricably intertwined with Debtor’s non-core, related claims. It would be inefficient for this Court to retain jurisdiction over the “core” claims while transferring the “related” claims to Florida.
See N. Parent, Inc., supra,
(II) The Third Exception of the M/S Bremen Rule
Debtor also contends that enforcement of the Forum Selection Clause fits within the third exception to the
M/S Bremen
rule. With regard to this exception, the Third Circuit has ruled that the “party objecting to the enforcement of a forum selection clause as ‘unreasonable’ ” must meet a “heavy burden” of proof.
Diaz Contracting, Inc.,
Debtor contends that it would be seriously inconvenient to litigate this dispute in Florida because:
(1) Debtor and all of its records are located here in Pennsylvania;
(2) Sten-Barr has local counsel who is intimately familiar with this Court, the proceedings before this Court and with Debtor’s Plan;
(3) All of the third parties whose records may have to be reviewed or whose employees may have to be deposed or called as witnesses at trial are located in Pennsylvania; and
(4) Third party witnesses would be subject to compulsory process here but not in Florida. Debtor would be forced to utilize videotape trial depositions for any third party witnesses whom it seeks to call at trial, rendering the cost of trial more expensive. 12 Moreover, since Debtor would have to rely upon trial depositions, the presentation of its case at trial would be seriously undermined.
These factors do not satisfy Debtor’s burden.
It may be inconvenient and expensive for Debtor to litigate in Florida since its records, its employees, all third party records and all third party witnesses are located in Pennsylvania, but “mere inconvenience or additional expense is not the test of unreasonableness.”
Diaz Contracting, Inc.,
Moreover, Debtor failed to offer any evidence to establish that its records cannot be transported to Florida and no evidence to substantiate its assertion that its presentation of video depositions at trial will detrimentally affect the delivery of its case. Indeed, Debtor made no effort to identify any of its witnesses or describe their anticipated testimony. Absent a record supporting its assertions, Debtor has not satisfied its “heavy” burden of proof.
See Arrow Plumbing and Heating, Inc. v. North American Mechanical Services Corp.,
The Court also notes that whether Sten-Barr has counsel who is familiar with this Court and the proceedings here is irrelevant to the determination of whether enforcement of the Forum Selection Clause would be unreasonable. The standard is not whether it would be more inconvenient for Sten-Barr to litigate here than for Debtor to litigate in Florida, but whether it would be so gravely inconvenient for Debtor to litigate in Florida that it will be effectively deprived of its day in court if forced to do so.
Since Debtor has not satisfied its burden of proof, the Forum Selection Clause shall be enforced.
See Diaz Contracting, Inc., supra,
(Ill) Discretion to Transfer Rather than Dismiss
In
Salovaara v. Jackson National Life Insurance Company, supra,
We acknowledge that, as a general matter, it makes better sense, when venue is proper but the parties have agreed upon a not-unreasonable forum selection clause that points to another federal venue, to transfer rather than dismiss.
Id. at 299. The Third Circuit noted that transfer is only available where a federal forum is identified in the parties’ forum selection clause. If the only forum identified in the forum selection clause is a state court, the only available remedy is dismissal. See id. at 298 (noting that transfer is not an option “when a forum selection clause specifies a non-federal forum.”).
While
Salovaara
dealt with a non-bankruptcy action filed in district court, the Third Circuit’s rationale seems equally applicable here.
See MAI Systems Corp. v. Bass (In re MAI Systems Corp.), supra
(transferring adversary proceeding to the district court in the Eastern District of Michigan based on forum selection clause in parties’ agreement). In the instant case, transfer is an option because the Forum Selection Clause allows litigation in both the federal and state courts.
See Salovaara, supra,
As this Court observed in
Schlein v. Golub (In re Schlein),
(1) convenience of the parties;
(2) interest of justice;
(3) choice of forum;
(4) enforceability of judgment;
(5) timeliness and fairness;
(6) the proximity of assets, creditor, debtor, respective principals, evidence and witnesses to the venue of the home court and the court for the proposed venue;
(7) the economical and efficient administration of the estate;
(8) judicial economy;
(9) the applicability of state law to the proceeding; and
(10) a local interest in having a localized controversy decided at home.
Weighing these factors under the circumstances of this case, this Court concludes that this proceeding should be transferred. When the parties entered into their agreements, they contractually agreed that they would litigate in Florida; it was their chosen forum. While it may be less convenient for Debtor to litigate in Florida, it contractually agreed to do so. Moreover, because Debtor has not met its burden of proof under the M/S Bremen rule, a transfer of this proceeding is “in the interest of justice.” Litigating this proceeding in Florida will not detrimentally affect the efficient administration of the estate which already has a confirmed plan for liquidation or the enforceability of any judgment. Lastly, since state law rather than bankruptcy law governs breach of contract claims, the expertise of this Court in the area of bankruptcy law will not be utilized in resolving the claims.
Therefore, this proceeding shall be transferred to Florida. Since the only district court in Brevard or Hillsborough County is in Tampa, the proceeding shall be transferred there.
Summary
Debtor has not met the standard necessary to deny enforcement of the Forum Selection Clause. Since transfer is an option over dismissal, the proceeding shall be transferred, in its entirety, to the United States District Court in the Middle District of Florida.
Order
And Now, this 30th day of November, 2005, upon consideration of the Motion of Defendant Sten-Barr Network Solutions, Inc. to Dismiss the Complaint of Plaintiff Access Care, Inc. (“Motion”), and after hearing with notice, and for the reasons set forth in the Court’s Opinion, it is hereby ORDERED and DECREED that:
1. The Motion is GRANTED in part.
2. The Adversary Proceeding is transferred to the United States District Court for the Middle District of Florida in Tampa, Hillsborough County, Florida.
Notes
. Rule 12(b)(3) of the Federal Rules of Civil Procedure is applicable here pursuant to Rule 7012 of the Federal Rules of Bankruptcy Procedure. In
Salovaara
v.
Jackson National Life Insurance,
. At the hearing, Debtor's counsel argued that the Forum Selection Clause is ambiguous because it grants Sten-Barr sole discretion to choose the county (Brevard or Hillsborough) and court (state or federal) for any lawsuit under the parties' agreements regardless of whether Debtor is the party initiating the lawsuit. Transcript at 13-17. This argument is not persuasive. Id. at 17. The language of the Forum Selection Clause is definite and clear. Simply because the parties agreed that Sten-Barr has sole discretion to decide between the choices identified in the clause does not render it ambiguous.
. In the Complaint, Debtor alleged that Sten-Barr breached its agreements with Debtor "by, among other things, failing to pay Access Care for the products and services which Access Care provided as the exclusive sub-distributor of Sten-Barr.” Complaint ¶ 46. However, at the hearing, Debtor's counsel indicated, that while she did not have all of the facts, that she was under the impression that the parties' agreements were terminated for reasons “that had nothing to do with billing issues or collection of receivables.” Transcript at 21.
. At the hearing, Debtor’s Counsel explained this point, stating:
[A]ll of the contracts were terminated in June prior to the filing of the bankruptcy case. However, there was still a course of dealings between the debtor and Sten-Barr after June of 2004. Specifically, Sten-Barr had requested that the debtor maintain the equipment at certain facilities.... Sten-Barr requested that rather than we remove the bed from under the patient, that we continue to provide services to these patients.
Transcript at 9.
. In its Response, Debtor notes that, in its bankruptcy case, Sten-Barr filed an Entry of Appearance and a Request for Notice Pursuant to Rule 2002, Response ¶ 3, participated in various hearings concerning tire sale of Debtor's assets,
id.
¶ 4, and filed an objection to the entry of an order authorizing the sale of certain inventory of the Debtor's assets (“which Sten-Barr argued was its 'inventory.' ”).
Id.
In the event that Debtor is relying upon these allegations to argue (which it never directly does) that Sten-Barr waived its right to rely upon the Forum Selection Clause, the Court rejects the argument. The Third Circuit has specifically held that a litigant can file a proof of claim in a bankruptcy case without waiving the provisions of a forum selection clause.
See Coastal Steel Corporation v. Tilghman Wheelabrator Ltd.,
. Debtor conceded in its Response that "this Court may take judicial notice of matters of record in the Bankruptcy Case[.]” Response at 1 n. 1
(citing
to
In re Indian Palms Associates, Ltd.,
. In Article XI, the Plan provides,
inter alia,
for this Court's retention of jurisdiction post-confirmation to: (1) "hear and determine” adversary proceedings involving account receivables owed to the Debtor: (2) "recover” all assets and property of the Debtor; and (3) "adjudicate and determine all adversary proceedings permitted under the Code.” Plan, Article XI, ¶¶ 11.4, 11.12, 11.18. However, as Judge Fox held in
Unified Data Systems, Inc. v. Almarc Corp. (In re Almarc Corp.),
. The $277,000 is the total amount of account receivables which Sten-Barr allegedly owes. As of the date of the hearing, Debtor's counsel did not know and, indeed, wanted permission to conduct discovery to determine, what amount of the receivables is attributable to pre-termination versus post-termination of the parties’ agreements. Transcript at 22-23. Accordingly, at this stage of the proceeding, Debtor has pled its counts, for breach of contract and quantum meruit, in the alternative. Part of the $277,000 may be for pre-termi-nation services and part of the $277,000 may be for post-termination services. While claims for quantum meruit are "precluded when the relationship between the parties is founded on a written agreement or express contract,”
Surya Systems v. Sunku,
. The parties' agreements do not contain a choice of law provision. However, since the parties agree that the M/S Bremen rule governs this proceeding, the Court shall apply it here. However, even if state law rather than federal law was applied here (the state law would either be the law of Pennsylvania, where the dispute was filed, or the law of Florida, which is the state identified in the Forum Selection Clause), the result would be the same because the law of Florida and Pennsylvania is the same as, or similar to, the Supreme Court's ruling in M/S Bremen.
In 1986, the Florida Supreme Court specifically adopted the view of the Supreme Court in
M/S Bremen
and held that "forum selection clauses should be enforced in the absence of a showing that enforcement would be unreasonable or unjust.”
Manrique v. Fabbri,
The law of Pennsylvania is similar to the Supreme Court's ruling in
M/S Bremen.
In
Central Contracting Co. v. C.E. Youngdahl & Co.,
. Debtor asserts in footnote 6 of its Response that "[t]his collection proceeding accounts for the
largest receivable
sought by the Debtor, the impact of which will significantly impact distributions to creditors under the Plan.” Response at 3 n. 6 (italics added). Presumably based on this footnote, Sten-Barr's counsel argued at the hearing that Debtor is raising "what is ... characteristically called a linchpin argument, in that the litigation is a linchpin to the Chapter 11 debtor's plan of reorganization.” Transcript at 3. If Debtor is, in fact, asserting a linchpin argument, its effort in this regard is limited to footnote 6 of its Response. Debtor never mentioned the argument at the hearing. In any event, the argument fails because, as this Court explained in
New Knight, Inc. v. National Wire & Metal Technologies, Inc. (In re New Knight),
. The "enforcement of pre-petition contract actions or breaches of that contract are non-core related proceedings.”
Yarosz v. National American Insurance Company (In re Yarosz),
. At the hearing, Sten-Barr’s counsel contended that “any issues pertaining to third parties are really minimized in this case because of the billing dispute between the parties." Transcript at 6. In response, Debtor’s counsel stated:
Contrary to Mr. Hinchman’s depiction of third parties, what we have here, to the extent that the records between the debtor and Sten-Barr don't match. The third parties are medical facilities in Pennsylvania. To the extent that we need to look at their records or depose any of those personnel, it would have to be done up here. I don’t believe Florida has jurisdiction over those people. We’re talking video depositions, et. cetera. So, I believe that the cost of actually moving the matter down to Florida is a little more expensive than as so characterized by Mr. Hinchman.
Id. at 13 (emphasis added). By making this statement, Debtor’s counsel to a certain extent hoisted herself on her own petard. The standard for unreasonableness under M/S Bremen is far from satisfied by a financial burden that can be summarized as a “little more expensive” as that characterized by the opposing party.