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Herr Industrial, Inc. v. CTI Systems, Sa

United States District Court, D. Kansas

June 12, 2015

HERR INDUSTRIAL, INC., Plaintiff,
v.
CTI SYSTEMS, SA and OLD REPUBLIC SURETY COMPANY, Defendants.

MEMORANDUM AND ORDER

JOHN W. LUNGSTRUM, District Judge.

This matter comes before the Court on defendants' motion to dismiss (Doc. # 21). For the reasons set forth below, the motion is granted, and plaintiff's claims are hereby dismissed.

I. Background

The following facts are taken from plaintiff's second amended complaint and the attachments thereto. Plaintiff Herr Industrial, Inc., a Pennsylvania corporation, entered into a contract with defendant CTI Systems, SA ("CTI"), a corporation organized under the laws of Luxembourg, where CTI maintains its principal place of business. CTI had contracted with the owner of property in Kansas to build a paint workshop, and in 2011, CTI contracted with plaintiff to install certain components. The contract (attached to the complaint) contained the following provision: "The PARTIES agree to submit to the exclusive jurisdiction of the courts of the Grand-Duchy of Luxembourg." In addition, the general conditions governing purchase orders under the contract contained the following provision:

By accepting the ORDER, the SUPPLIER accepts the jurisdiction of the courts where CTI is domiciled. Any and all claims or disputes arising out of or in connection with the ORDER, regardless of the nature and cause of the claim/dispute, shall be settled by the competent court of the place of the registered office of CTI. Notwithstanding the foregoing, CTI reserves the right to bring any claim/dispute before the competent court of the SUPPLIER's registered office, branch, agency or establishment or the place where under the ORDER the GOODS were delivered or should have been delivered.

Plaintiff performed its last work under the contract in 2013, and plaintiff alleges that CTI owes a total of $372, 050.66 to plaintiff under the contract. Plaintiff filed a mechanic's lien against the property, but CTI and defendant Old Republic Surety Company, as surety, executed and filed a bond in substitution for the lien.

In 2014, CTI brought suit against plaintiff in Luxembourg, alleging that it had paid too much to plaintiff under the contract. Plaintiff failed to appear, and by order of July 11, 2014 (attached to the complaint), the District Court of and in Luxembourg awarded CTI judgment against plaintiff in the amount of $393, 293.66, along with interest, costs and expenses, and a fee of 1000 euros.

On July 28, 2014, plaintiff brought the instant action. By its second amended complaint, plaintiff asserts claims against CTI for breach of contract and unjust enrichment, by which plaintiff seeks damages in the amount of $372, 050.66. Plaintiff also asserts a claim on the bond issued by CTI and its surety. Plaintiff asserts a claim against CTI under the Kansas Fairness in Private Construction Contract Act (the KFPCCA or "the Act"), K.S.A. § 16-1801 et seq., by which it seeks interest and attorney fees. Finally, plaintiff seeks a declaratory judgment to the effect that CTI's Luxembourg judgment against plaintiff is invalid and against Kansas public policy.

Defendants move to dismiss all of plaintiff's claims. Plaintiff does not dispute that its claim against defendant surety requires an underlying finding of CTI's liability. Accordingly, the Court considers whether plaintiff may assert these claims against CTI in this suit.

II. Forum Selection Clause

A. Procedural Basis for Motion to Dismiss

Plaintiff concedes that its contract with CTI contained a mandatory forum selection clause providing for exclusive jurisdiction in Luxembourg courts. CTI seeks dismissal of plaintiff's claims on the basis of that forum selection clause. In its briefs, CTI cites Fed.R.Civ.P. 12(b)(6) and 12(b)(3) as possible bases for its motion to dismiss. The Supreme Court has made clear, however, that a mandatory forum selection clause is properly enforced by a motion to transfer pursuant to 28 U.S.C. § 1404(a) or, in the case of a clause pointing to a state or foreign forum, by a motion to dismiss based on the doctrine of forum non conveniens. See Atlantic Marine Constr. Co. v. United States Dist. Ct. for W. Dist. of Tex., 134 S.Ct. 568, 580 (2013). Accordingly, because the parties have fully briefed the issue of the enforceability of the forum selection clause, the Court will consider whether dismissal is appropriate in this case under the doctrine of forum non conveniens.

B. Law Governing Enforcement of the Forum Selection Clause

The Court first addresses which body of law should govern the issue of the enforceability of the forum selection clause. In Excell, Inc. v. Sterling Boiler & Mechanical, Inc., 106 F.3d 318 (10th Cir. 1997), the Tenth Circuit expressly declined to decide whether the forum state's law or federal common law controls the validity and interpretation of a forum selection clause in a case based on diversity jurisdiction. See id. at 320-21 (noting that there were no material discrepancies in that case between the two bodies of law). Subsequently, in Yavuz v. 61MM, Ltd., 465 F.3d 418 (10th Cir. 2006), a case involving federal statutory claims, the Tenth Circuit applied federal law to conclude that, if the parties have included a choice-of-law provision in their contract, a forum selection clause should be interpreted under the law named in that choice-of-law provision. See id. at 428-31. The court did not address which law governs the enforceability of a forum selection clause, however, and Yavuz was not a case based on diversity jurisdiction. See id.

The overwhelming majority of circuit courts consider the enforceability of forum selection clauses under federal law in diversity cases, based on the conclusion that venue presents a question of procedure for purposes of the Erie doctrine. See, e.g., Wong v. PartyGaming Ltd., 589 F.3d 821, 827-28 & n.5 (6th Cir. 2009) (following the Second, Third, Fifth, Eighth, Ninth, and Eleventh Circuits in holding that in diversity suits the enforceability of a forum selection clause is governed by federal law); Albermarle Corp. v. AstraZeneca UK Ltd., 628 F.3d 643, 648-50 (4th Cir. 2010) (citing Wong in following the majority rule). Moreover, in Atlantic Marine, a diversity case, the Supreme Court presupposed a contractually valid forum selection clause and thus did not directly address this issue; but the Court did rely on its prior cases, including M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), in concluding that a forum selection clause should be enforced under Section 1404(a) in all but the most unusual cases. See Atlantic Marine, 134 S.Ct. at 582-83. Plaintiff points out that the present case does not involve a motion to transfer under Section 1404; the Supreme Court made clear, however, that the same standards govern motions to dismiss based on forum non conveniens. See id. at 581, 583 n.8. Like the majority of circuit courts, this Court believes that venue presents a question of procedure that must be governed by federal law in diversity cases. Moreover, applying federal law would not run afoul of Yavuz in this case (the parties' contract here contains a Luxembourg choice-of-law provision), as the enforceability and interpretation of a forum selection clause present distinct questions that may appropriately be governed by different bodies of law. See Martinez v. Bloomberg LP, 740 F.3d 211, 217-24 (2d Cir. 2014) (noting this distinction and concluding that questions of enforceability must be resolved under federal law while interpretative questions should be resolved under the law designated ...


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