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HOFFER v. INFOSPACE.COM

June 29, 2000

RICHARD HOFFER, PLAINTIFF,
V.
INFOSPACE.COM, INC., AND NAVEEN JAIN, DEFENDANTS.



The opinion of the court was delivered by: Lechner, District Judge.

  OPINION

This is an action brought by plaintiff, Robert Hoffer ("Hoffer"), against defendants InfoSpace.com, Inc. ("Infospace") and Naveen Jain ("Jain") (collectively, the "Defendants"). On 15 December 1999, Hoffer filed a complaint (the "Complaint") that alleges, inter alia, a claim for damages for breach of contract, misrepresentation, fraud, breach of the covenant of good faith and fair dealing and promissory estoppel. See Complaint, ¶¶ 1, 22-44. Hoffer further alleges the instant matter is within the jurisdiction of this court pursuant to 28 U.S.C. § 1332, see id., ¶ 2, and venue is properly laid in this District pursuant to 28 U.S.C. § 1391 (a) ("Section 1391(a)"). See id. On 31 January 2000, the Defendants filed an answer and counter claims (the "Answer/Counterclaims"). In particular, the Defendants allege Hoffer breached the terms of a loan agreement with Infospace, misappropriated trade secrets and breached a confidential relationship with his employer, Infospace. See Answer/Counterclaims, ¶¶ 60-66.

Currently pending is a motion, filed by the Defendants, to dismiss the action, pursuant to Rule 12(b)(3) of the Federal Rules of Civil Procedure for improper venue based on a forum selection clause (the "Forum Selection Clause") contained in an employee non-disclosure agreement (the "NDA") entered into by Hoffer and Infospace. In the alternative, the Defendants request that the court transfer the action (the "Motion to Transfer")*fn1 to the United States District Court for the Western District of Washington (the "Western District of Washington") to cure a defect in venue, pursuant to 28 U.S.C. § 1406 ("Section 1406") and, or, for the convenience of the parties and witnesses, pursuant to 28 U.S.C. § 1404 (a) ("Section 1404(a)").

For the reasons set out below, the Motion to Transfer is granted; the action is transferred for all purposes to the United States District Court for the Western District of Washington.

Background

A. Parties

Hoffer currently resides at One East Elbrook Drive in Allendale, New Jersey. See Complaint, ¶ 3. It appears Hoffer has been engaged in the business of licensing "yellow and white pages data" and syndicated services to internet, software, database, telecommunications and media firms. Id., ¶ 7. Hoffer alleges he began working for Infospace in or around the "late Spring of 1996 on a consulting basis." Id., ¶ 11.

Jain is the President and Chief Executive Officer of Infospace and resides in the State of Washington. Id., 914. See also Answer/Counterclaims, ¶¶ 4-5. Infospace is a Delaware corporation with its principal place of business located in Redmond, Washington. Id., ¶ 5. See also Answer/Counterclaims, ¶¶ 4-5. Infospace was founded in or around March 1996. Id., ¶ 6. Hoffer alleges Infospace is a provider of internet services. Id. Hoffer further alleges Infospace provides these services through its yellow pages, white pages and e-mail directories. Id.

B. Facts

As mentioned, Hoffer alleges the Defendants breached the terms of an employment agreement and, in addition, have prevented Hoffer from exercising certain stock options given to him in an employment agreement, dated 25 June 1996 (the "25 June 1996 Employment Agreement"). See id., ¶ 19.

Prior to March of 1996, it appears Hoffer was the general manager of the "electronic/interactive" media division of a firm known as Database America Companies, Inc. ("DAC"), located in Montvale, New Jersey. See id., ¶ 7. As mentioned, Hoffer was engaged in the business of licensing yellow and white pages data and syndicated services to internet, software, database, telecommunications and media firms. See id.

In or around the late Spring of 1996, Hoffer began working with Jain on a consulting basis. See id., ¶ 11. Hoffer alleges he agreed to work with Jain to build an internet directory services company. See id., ¶ 12. For his part Hoffer alleges he created a sales presentation for "co-branding" services as well as a revenue model for the business. See id. Hoffer further alleges he introduced Jain to several clients including "Playboy, the New York Times, The Wall Street Journal, Infoseek, Web TV, Advanced Internet and Riddler/Interactive Imagination." Id., ¶ 13. In addition, Hoffer alleges he "demonstrated to Jain a directory service application capable of supporting high traffic query and response into very large databases via HTTP." Id., ¶ 14. Hoffer alleges he introduced Jain to Timothy Day, a software developer, capable of engineering the software necessary to operate the directory services that Infospace was to provide to its customers. Id., ¶ 15.

Hoffer alleges he left DAC and officially joined Infospace based on the representation of Jain that Hoffer would be a 50% partner with Jain. See id., ¶ 16. Hoffer specifically alleges he "quit [DAC] in New Jersey and joined Infospace at its new offices in Redmond, Washington." Id. Upon arrival at Infospace, Hoffer alleges Jain "unilaterally reduced" his prior employment offer of a 50% partnership interest in Infospace and, instead, presented Hoffer with various employment proposals. See id., ¶ 17.

On or about 1 June 1996, Hoffer alleges Jain forwarded to him a "letter agreement" that provided that Hoffer would be paid $50,000 and granted the option to buy up to 300,000 shares of stock at $.10 per share. See id., ¶ 17. As a result of this new employment proposal, it is alleged that Hoffer and Jain entered into negotiations concerning an acceptable employment arrangement. See id. It appears that on 25 June 1996,*fn3 Jain provided Hoffer with an employment agreement (see 25 June 1996 Employment Agreement), by which Jan granted Hoffer, in part, the right to the immediate purchase of up to 75,000 shares of stock at $1.00 per share.

Hoffer alleges the 25 June 1996 Employment Agreement was executed by Jain and accepted by Hoffer. See id. Thereafter, Hoffer alleges he began working as an Infospace employee for a period of approximately four months. See id., ¶ 18. Hoffer, however, alleges Jain fired him over the telephone during a business trip. See id.

Upon information and belief, Hoffer alleges that Jain has "engaged in a pattern and practice of soliciting the involvement and employment of key personnel of competing business by promising them senior management positions and lucrative compensation packages . . . and then terminating the employee and reneging on his promises and agreements." Id., ¶ 20. In count one of the Complaint, Hoffer alleges Infospace breached the 25 June 1996 Employment Agreement. See id., ¶ 23. Hoffer, moreover, alleges he has performed the terms of the 25 June 1995 Employment Agreement and completed all conditions necessary to entitle him to exercise the options contained in the 26 June 1996 Employment Agreement. See id.

In count two of the Complaint, Hoffer alleges the Defendants "breached the covenant of good faith and fair dealing implied in every contract." Id., ¶¶ 26-27.

In count three and count four of the Complaint Hoffer alleges the Defendants committed fraud and made negligent misrepresentations in that they misrepresented "material facts inducing [Hoffer] to terminate his employment with [DAC] and to accept an employment position with Infospace and to provide infospace with [Hoffer's] contacts and industry knowledge." Id., ¶ 29. Hoffer specifically alleges that based on the representations of Jain concerning "founders equity," he introduced the Defendants to various business contacts that are today part of the Infospace network. See id. Hoffer further alleges he introduced the Defendants to "technical people who were able to develop the database engineering tools that are used in creating the directory service and products provided by Infospace. . . ." Id.

In addition, Hoffer alleges that based on the representations of Jain, he left his position at DAC and joined Infospace in Redmond, Washington, "where he was provided with paperwork which was different than the representations that have been made by Jain to induce Hoffer to leave his prior employment." Id., ¶ 30. See also id., 35-36.

Finally, in count five of the Complaint, Hoffer alleges the Defendants are estopped from denying the terms of the 25 June 1996 Employment Agreement because Hoffer reasonably relied on the misrepresentations and inducements made by the Defendants. See id., ¶¶ 40-44.

Discussion

A. The Forum Selection Clause

As mentioned, the Motion to Transfer is based, in part, on the Forum Selection Clause contained in the NDA negotiated and signed by Hoffer and Infospace in Redmond, Washington. See Moving Brief at 4-5, 8-14; Reply Brief at 2-9. The Defendants argued that as a result of the employment negotiations between Hoffer and Jain (which took place exclusively in Redmond, Washington) Infospace drafted, and Hoffer signed the 25 June 1996 Employment Agreement and the NDA at Infospace headquarters. See Moving Brief at 5. The Defendants specifically argued that the Forum Selection Clause "requires that actions arising out of [Hoffer's] employment with Infospace be filed in state court in King County, Washington or in the United States District Court for the Western District of Washington." Id. at 8. The Forum Selection Clause stated, in relevant part, that the parties agreed

that this agreement shall be governed for all purposes by the laws of the State of Washington as such law applies to contracts to be performed within Washington . . . and that venue for any action arising out of this Agreement shall be properly laid in King county, Washington or in the Federal District Court of the Western District of Washington. . . .

NDA, ¶ 14, attached as Ex. B to the A. Jain Aff. In sum, the Defendants argued that the Forum Selection Clause is valid. They contend that it should be enforced because Hoffer cannot meet his burden of clearly establishing that such enforcement would be "unreasonable and unjust, or that the [Forum Selection Clause] was invalid for such reasons as fraud or overreaching." Moving Brief at 10 (citations omitted). See also Reply Brief at 6-10.

The Circuit has noted that the construction of a contract is usually a matter of State, not Federal, common law. See Bel-Ray Co., Inc. v. Chemrite (Pty) Ltd., 181 F.3d 435, 441 (3d Cir. 1999); Danka Funding v. Page, Scrantom, Sprouse, Tucker & Ford, 21 F. Supp.2d 465, 474 (D.N.J. 1998) (citing General Engineering Corp. v. Martin Marietta, 783 F.2d 352, 356 (3d Cir. 1986)). Accordingly, the initial step in the instant matter is to determine which State law to apply when considering whether the Forum Selection Clause is an enforceable part of the employment agreement entered into between the parties. See Danka Funding, 21 F. Supp.2d at 469.

The language of the Forum Selection Clause itself, therefore, is not authority for what law to apply. Rather, a Federal court sitting in diversity must utilize the choice of law rules of the forum State — New Jersey. See Day & Zimmermann, Inc. v. Challoner, 423 U.S. 3, 96 S.Ct. 167, 46 L.Ed.2d 3 (1975); Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); On Air Ent. Corp. v. Nat'l. Indem. Co, 210 F.3d 146, 149 (3d Cir. 2000); Assicurazioni Generali v. Clover, 195 F.3d 161, 164 (3d Cir. 1999) (stating that "[D]istrict [C]ourt in . . . diversity action [is] obligated to apply the forum's . . . choice of law rules in resolving the parties' dispute. . . ."); Robeson Indus. Corp. v. Hartford Acc. & Indem. Corp., 178 F.3d 160, 164 (3d Cir. 1999) (same); Danka Funding, 21 F. Supp.2d at 469.

New Jersey courts implement the "governmental-interest" approach to choice of law questions, which requires application of the law of the State with the greatest interest in resolving the particular issue raised by the underlying litigation. See On Air Ent., 210 F.3d at 149; Robeson, 178 F.3d at 164; Gantes v. Kason Corp., 145 N.J. 478, 484-493, 679 A.2d 106 (1996). Cf. Pfizer, Inc. v. Employers Ins. of Wausau, 154 N.J. 187, 712 A.2d 634 (1998); HM Holdings, Inc. v. Aetna Cas. & Sur. Co., 154 N.J. 208, 712 A.2d 645 (1998) (decided concurrently with Pfizer); Unisys Corp. v. Insurance Co. of N. Am., 154 N.J. 217, 712 A.2d 649 (1998) (same); Gilbert Spruance Co. v. Pennsylvania Mfrs.' Ass'n Ins. Co., 134 N.J. 96, 629 A.2d 885, (1993).

"The initial prong of the governmental-interest analysis entails an inquiry into whether there is an actual conflict between the laws of the respective states, a determination that is made on an issue-by-issue basis." Gantes, 145 N.J. at 484-493, 679 A.2d 106. In the absence of an actual conflict, the law of the forum State — in this case, New Jersey-is applied. See On Air Ent., 210 F.3d at 149; Danka Funding, 21 F. Supp.2d at 469 (citing Schreiber v. Camm, 848 F. Supp. 1170, 1174 (D.N.J. 1994)).

In the instant matter, no actual conflict exists with respect to the standard for consent to forum selection clauses in contracts; the courts of New Jersey and Washington are in accord with the law as set out by the United States Supreme Court in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972),*fn4 and its progeny. Compare Copelco Capital Inc. v. Shapiro, 331 N.J. Super. 1, 4, 750 A.2d 773 (App. Div. 200 0) (stating that "forum selection clauses are generally enforced in New Jersey." "Nevertheless, such provisions will not be given effect if they are the result of `fraud or coercive bargaining power,'" or if enforcement of the clause would "be seriously inconvenient for the trial."); Caspi v. Microsoft Network, 323 N.J. Super. 118, 122, 732 A.2d 528 (App. Div. 1999); Shelter Systems v. Lanni Builders, 263 N.J. Super. 373, 375, 622 A.2d 1345 (App. Div. 1993) with In re Matter of Kronenberg Family Trust, 2000 WL 17178, 1 (Wash.App. Div. 10 Jan. 2000) (unpublished) (observing that "Washington will enforce a forum selection clause unless it is unreasonable and unjust."); Voicelink Data Services, Inc. v. Datapulse, Inc., 86 Wn. App. 613, 618, 937 P.2d 1158 (1997) (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 n. 14, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985)).

Analysis of the Forum Selection Clause, therefore, is necessarily predicated on the "M/S Bremen standard" as applied by this Circuit. See Danka Funding, 21 F. Supp2d. at 470 (stating that "[t]his [c]ourt will therefore apply M/S Bremen standard as it has been applied in New Jersey and this Circuit, occasionally looking to the United States Supreme Court for guidance."). The Circuit, in accordance with the "M/S Bremen standard, " deems forum selection clauses presumptively valid. See Reynolds Pub., Inc. v. Graphics Financial Group, Ltd., 938 F. Supp. 256, 263 (D.N.J. 1996). In this regard, the Circuit directs that forum selection clauses should be enforced unless the party objecting to enforcement establishes that "it would be the result of fraud or overreaching, enforcement would violate a strong public policy of the forum, or that enforcement would in the particular circumstances of the case result in litigation in a jurisdiction so seriously inconvenient as to be unreasonable." Id., at 263. See also Dayhoff Inc. v. H.J. Heinz Co., 86 F.3d 1287, 1297-98 (3d Cir. 1996); Danka Funding, 21 F. Supp.2d. at 470.

The arguments set forth by Hoffer, in support of his contention that the Forum Selection Clause is unreasonable and, therefore, unenforceable, are without merit. For example, Hoffer argued, in part, that the presumptive validity of the Forum Selection Clause is overcome because it was the "result of fraud or overreaching[,] . . . that enforcement would violate a strong public policy of the forum[,] or . . . that enforcement would in the particular circumstances of the case result in litigation in a jurisdiction so seriously inconvenient as to be unreasonable." Opp. Brief at 22.

1. Fraud, Overreaching and, or, Undue Influence

Hoffer argued that the Forum Selection Clause is invalid because "Jain fraudulently misrepresented that he and Hoffer would be partners with equal numbers of Infospace shares, thereby inducing Hoffer to resign from his position at [DAC]."*fn5 Id. at 23.

While it is true that a forum selection clause may be set aside if it is the product of fraud or overreaching, see Danka Funding, 21 F. Supp.2d at 470, this is so only where the "inclusion of that clause in the contract was the product of fraud or coercion." Id. (citing Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 n. 14, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974)). In other words, fraud and overreaching are grounds for setting aside a forum selection clause only if it is determined that the inclusion of the forum selection clause in the contract was the product of deception and, or, coercion. It is insufficient, therefore, "to allege that one was induced generally to enter into the contract itself as a result of fraud." Nat'l Micrographics Sys. v. Canon U.S.A., 825 F. Supp. 671, 675 (D.N.J. 1993).

In the instant matter, however, Hoffer merely argued that the Defendants, in an initial employment discussion, "fraudulently misrepresented that [Jan] and Hoffer would be partners with equal numbers of Infospace shares. . . ." Opp. Brief at 23. Significantly, Hoffer did not argue that the inclusion of the Forum Selection Clause in the NDA was a result of either fraud, deception and, or, coercion on the part of the Defendants. See Danka Funding, 21 F. Supp2d. at 470; Nat'l Micrographics Sys., 825 F. Supp. at 675.

Even assuming arguendo that Hoffer argued the inclusion of the Forum Selection Clause in the NDA resulted from fraud or coercion, there are simply no facts to support such a conclusion. For example, the Complaint does not mention, much more allege, that the Forum Selection Clause, or even the NDA or the 25 June 1996 Employment Agreement, was the product of fraud or coercion. See Complaint, ¶¶ 16-18. To the contrary, Hoffer alleges that

[o]n or about June 1, 1996 Jain provided [him] with a proposed letter agreement that provided, in pertinent part, that [he] was to be paid an annual salary of $50,000 and granted [him] the option to buy up to 300,000 shares of stock at $.10 per share.
Thereafter, negotiations between Jain and Hoffer ensued. Jain then provided Hoffer with a letter agreement dated as of June 25, 1996 that granted Hoffer the immediate right to purchase up to 75,000 shares of stock at $1.00 per share. The June 25, 1996 Agreement was executed by Naveen Jain, as President of Infospace and accepted by Hoffer. Thereafter, Hoffer worked as an employee for Infospace for a period of approximately 4 months. . . .

Id., ΒΆΒΆ 17-18 (emphasis added). Hoffer similarly characterized the employment "negotiations" that took place in Redmond, Washington in "Plaintiff's Answers and Responses to Defendants' First Set of Interrogatories and Request for the Production of Documents" (the "Answers and Responses"), ...


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