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Instrumentation Associates Inc. v. Madsen Electronics Ltd.

argued: April 12, 1988.

INSTRUMENTATION ASSOCIATES, INC.
v.
MADSEN ELECTRONICS (CANADA) LTD., AUDIOLOGY ASSOCIATES, INC., AND GORDON STOWE AND ASSOCIATES, INC. MADSEN ELECTRONICS (CANADA) LTD., APPELLANT



Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Civil Action No. 87-2841.

Hutchinson, Scirica and Garth, Circuit Judges.

Author: Hutchinson

Opinion OF THE COURT

HUTCHINSON, Circuit Judge.

I.

Madsen Electronics (Canada) Ltd. (Madsen) appeals from an order of the United States District Court for the Eastern District of Pennsylvania denying its motion to dismiss appellee Instrumentation Associates Inc.'s (Instrumentation's) action asserting wrongful termination of a distributorship agreement. Madsen's motion to dismiss was premised on a forum selection clause in the distributorship agreement.

The district court had subject matter jurisdiction over this diversity of citizenship action under 28 U.S.C.A. § 1332(a) (West Supp. 1988). We have appellate jurisdiction over an appeal from an order refusing to enforce a forum selection clause as a collateral final order under 28 U.S.C.A. § 1291 (West Supp. 1988), as an interlocutory appeal under 28 U.S.C.A. § 1292(a)(2) (West Supp. 1988), and under the All Writs Act, 28 U.S.C.A. § 1251 (West 1966). In re Diaz Contracting, Inc. v. Nanco Contracting Corp., 817 F.2d 1047 (3d Cir. 1987). The enforceability of a forum selection clause is an issue of law, and our scope of review is plenary. Id. at 1055; General Engineering Corp. v. Martin Marietta Alumina, Inc., 783 F.2d 352, 359 (3d Cir. 1986).*fn1

The district court denied Madsen's motion to dismiss because it found the reference in the forum selection clause to the "laws of Canada" as the law of choice for settling disputes "in connection with [the] agreement" ambiguous and hence unenforceable. In so doing, the court erred by deciding the validity of the contract's choice of law before considering the threshold question of whether the parties' contractual choice of a Canadian forum was enforceable under the conflict of laws principles embodied in Erie R.R. v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938) and Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941). Because we find that the forum selection clause would be enforced under the law of any jurisdiction which could be applied in this case, we will reverse the district court's order denying Madsen's motion to dismiss.

II.

Instrumentation is a Pennsylvania corporation with a place of business in Upper Darby, Pennsylvania. It is engaged in the business of selling audiological measuring devices. In August, 1984 it entered into a written agreement with Madsen, a Canadian audiological supply company with a place of business in Oakville, Ontario, Canada. The agreement gave Instrumentation an exclusive right to distribute Madsen products in Delaware, New Jersey, Pennsylvania and parts of New York and West Virginia.*fn2 Joint Appendix (Jt. App.) at 9. The agreement was for an initial one year term from August, 1984 until July, 1985 and provided for automatic annual renewal unless each party gave "at least three months written notice" of termination. Jt. App. at 10. On December 23, 1986 Madsen sent Instrumentation a written termination notice giving Instrumentation ninety days to settle outstanding accounts.

On April 29, 1987, after unsuccessful attempts to resolve the dispute, Instrumentation filed this action for breach of the agreement in the district court. Madsen filed a motion to dismiss the case based on the agreement's forum selection clause, which provided: "Matters of dispute in connection with this Agreement shall be settled by a Canadian Court of Justice in accordance with the laws of Canada." Jt. App. at 15.

III.

In denying Madsen's motion to dismiss, the district court reasoned that the forum selection clause's reference to the "laws of Canada" was too ambiguous to enforce because the "laws of Canada" varied widely from province to province. Madsen alleged in its submissions that the "general rule of Canada" required the forum selection clause to be enforced. However, because Madsen offered no evidence of a uniformly recognized "general rule of Canada," the district court held that the entire clause, including its choice of forum, was unenforceable.*fn3 The agreement, however, purports not only to provide a choice of law, but also a choice of forum.

The district court should have resolved the preliminary issue of whether the parties' forum selection clause is enforceable before reaching the issue of whether the contract provision is ambiguous. This conflicts issue, in ...


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