Case Information
*1
T HE U TAH C OURT OF A PPEALS
B AD A SS C OFFEE C OMPANY OF H AWAII , I NC .,
Appellant, v.
R OYAL A LOHA I NTERNATIONAL , LLC,
Appellee.
Opinion No. 20140322-CA Filed December 24, 2015 Third District Court, Salt Lake Department The Honorable L.A. Dever No. 130906130 Blake T. Ostler, Attorney for Appellant Joshua R. Furman and John P. Bagley, Attorneys for Appellee
J UDGE J AMES Z. D AVIS authored this Opinion, in which J UDGES J. F REDERIC V OROS J R . and M ICHELE M. C HRISTIANSEN concurred.
DAVIS, Judge: Bad Ass Coffee Company of Hawaii, Inc. (BACH) appeals
the district court’s grant of Royal Aloha International, LLC’s (RAI) motion to dismiss for improper venue. See Utah R. Civ. P. 12(b)(3). We reverse and remand for further proceedings. 1. Judge James Z. Davis authored this opinion as a member of the Utah Court of Appeals. He retired from the court on November 16, 2015, before this opinion issued.
BACKGROUND
¶2 In 2011, RAI and BACH entered into a license agreement (the Agreement) in which BACH transferred to RAI ‚an exclusive, royalty-free, perpetual, irrevocable, worldwide right to use, market and exploit the licensed mark established by BACH together with its proprietary coffee beans, mixes, syrups and other ingredients and the BACH system in all places in the world except the United States, Japan and Malaysia.‛ In return, BACH was granted a 25% equity interest in RAI. The Agreement was negotiated by Bachir Mihoubi, who
was RAI’s agent, and Harold Hill, BACH’s former president. According to BACH, Hill—whose family-owned company, HJM, Inc., is a member and manager of RAI—engaged in self-dealing in negotiating the Agreement and conspired with Mihoubi to misappropriate a corporate opportunity belonging to BACH, to conceal Hill’s interest in the deal, and to replace the contract drafted by BACH’s legal counsel with one that materially altered terms meant to protect BACH’s interests. In 2013, BACH brought a complaint against RAI
requesting a judgment declaring the Agreement void because it
(a) is an illusory contract; (b) fails for failure and lack of consideration; (c) is contrary to BACH’s Bylaws; (d) violates Utah’s Revised Business Corporations Act; (e) results from self-dealing and a conspiracy to misappropriate corporate opportunities; (f) is the result of a conflict transaction; (g) lacks requisite authority; and (h) for other reasons shown at a trial in this matter.
2. We recite the facts as stated in BACH’s amended complaint. In response, RAI brought a motion to dismiss for improper venue pursuant to rule 12(b)(3) of the Utah Rules of Civil Procedure, citing a forum-selection clause in the Agreement requiring that all litigation take place in Fulton County, Georgia. BACH opposed the motion to dismiss, arguing that the forum- selection clause did not apply to its claims and that even if it did, it should not be enforced because, inter alia, see infra note 4, it was fraudulently obtained. Following a hearing, the district court granted RAI’s
motion. Although the district court was ‚troubled somewhat by . . . the claim of fraud,‛ it considered itself bound by the Utah Supreme Court’s holding in Innerlight, Inc. v. Matrix Group, LLC , 2009 UT 31, 214 P.3d 854, to enforce the forum-selection clause based on a plain-language reading of the Agreement, regardless of whether the Agreement, or even the forum-selection clause itself, might have been obtained by fraud. BACH now appeals.
ISSUE AND STANDARD OF REVIEW BACH argues that the district court employed the wrong
legal standard in enforcing the forum-selection clause. Whether
the district court applied the correct legal standard is a question
3. BACH alternatively argues that the forum-selection clause,
which applies to ‚any dispute arising from the interpretation or
performance in connection with this Agreement,‛ does not apply
to BACH’s declaratory action regarding the ‚existence and
validity‛ of the Agreement. However, it appears that at least
some of BACH’s arguments—that the Agreement is an illusory
contract, that it fails for lack of consideration, that it is contrary
to BACH’s bylaws, and that it violates Utah’s Revised Business
Corporations Act—would require the district court to interpret
the Agreement. Thus, we are not convinced that these claims do
not fall within the purview of the forum-selection clause.
of law, which we review for correctness.
Jensen v. Intermountain
Power Agency
,
ANALYSIS ‚[F]orum selection clauses that have been obtained
through freely negotiated agreements and are not unreasonable
and unjust will be upheld as valid.‛
Energy Claims Ltd. v. Catalyst
Inv. Group Ltd.
, 2014 UT 13, ¶ 47, 325 P.3d 70 (citation and
internal quotation marks omitted). A plaintiff seeking to avoid
enforcement of a forum-selection clause bears the burden of
demonstrating
that enforcement would be unfair or
unreasonable.
Prows v. Pinpoint Retail Sys., Inc.
,
(continued…)
In ruling on RAI’s motion to dismiss, the district court
concluded that our supreme court’s decision in
Innerlight
precluded it from looking beyond the ‚four corners‛ of the
contract to consider whether the unambiguous forum-selection
clause was obtained by fraud. We agree with BACH that the
district court incorrectly interpreted
Innerlight
, particularly in
light of our supreme court’s more recent holding in
Energy
Claims Ltd. v. Catalyst Inv. Group Ltd.
,
through fraud or overreaching, that Hill lacked authority to approve the Agreement on BACH’s behalf, that the Agreement fails for lack of consideration, and that RAI’s obligations under the Agreement are illusory. However, even if BACH were to ultimately establish that the Agreement is unenforceable due to lack of authority, failure of consideration, or illusory obligations, it would not necessarily follow that the forum-selection clause is unfair or unreasonable. See Innerlight, Inc. v. Matrix Group, LLC , 2009 UT 31, ¶ 15, 214 P.3d 854 (holding that a forum-selection clause was enforceable, even where other contract provisions were invalidated due to the failure of a condition precedent, where the parties did not express their intent for the condition precedent to apply to the entire contract); see also Marra v. Papandreou , 216 F.3d 1119, 1123 (D.C. Cir. 2000) (‚A forum- selection clause is understood not merely as a contract provision, but as a distinct contract in and of itself . . . that is separate from the obligations the parties owe to each other under the remainder of the contract.‛), cited with approval in Innerlight , 2009 UT 31, ¶ 16 n.5. Thus, in reviewing the district court’s decision to dismiss for improper venue, we consider only BACH’s argument that the Agreement was obtained by fraud or overreaching. 5. Energy Claims was decided after the district court ruled on RAI’s motion to dismiss. In Innerlight , the court was not faced with a claim of fraud
and, indeed, confirmed that the contract at issue in that case had
been ‚negotiated and signed by both parties,‛ ‚each of *which+
was represented by counsel.‛
Innerlight
,
the fraud exception to the general rule that forum-selection
clauses should be enforced.
Energy Claims
,
interpretation of the forum-selection clause without considering whether the alleged fraud or overreaching made enforcement unfair or unreasonable. The district court did not consider whether BACH had adequately pleaded a fraud claim and did not hold an evidentiary hearing to consider the fraud evidence. Thus, we agree with BACH that the district court applied the wrong standard in dismissing the case based on the forum- selection clause. RAI argues that we should nevertheless affirm the
dismissal on the ground that BACH failed to state a claim of fraud in its amended complaint and therefore did not comply with rule 9(b)’s particularity requirement. Because the district court did not consider the sufficiency of the complaint, we consider it more appropriate to remand the case to give the district court the opportunity to determine whether BACH adequately pleaded fraud or overreaching and, if appropriate, give BACH an opportunity to amend its complaint.
6. Because the fraud exception to the general rule for enforcing forum-selection clauses ‚relates to the issue of ‘overreaching’ generally‛ and encompasses a number of related claims, whether based in contract or tort, BACH’s claim of overreaching, if pleaded with particularity, could support a determination not to enforce the forum-selection clause. See Energy Claims Ltd. v. Catalyst Inv. Group Ltd. , 2014 UT 13, ¶ 49 n.70, 325 P.3d 70 (explaining that the opinion’s analysis of forum selection clauses obtained by fraud ‚applies equally to all allegations of overreaching,‛ including an allegation that a contract was obtained through ‚‘unconscionable means’ in furtherance of a civil conspiracy‛); see also Black’s Law Dictionary 1213 (9th ed. 2009) (defining ‚overreaching‛ as ‚*t+he act or an instance of taking unfair commercial advantage of another, esp. by fraudulent means‛).
CONCLUSION The district court applied the wrong legal standard when
it dismissed BACH’s amended complaint based on a plain- language reading of the forum-selection clause without considering whether alleged fraud or overreaching on the part of RAI made it unfair or unreasonable to enforce the forum- selection clause. We therefore reverse the district court’s order of dismissal and remand for further proceedings.