United States District Court, D. New Jersey
October 18, 2005.
DATAFLEX, LLC, et al., Plaintiffs,
SAFCO PRODUCTS CO., Defendant.
The opinion of the court was delivered by: MARY COOPER, District Judge
The Court issued an order to show cause why this action to
recover damages for, inter alia, breach of contract should
not be remanded to New Jersey Superior Court, Monmouth County,
for lack of jurisdiction under 28 U.S.C. § ("Section") 1332.
(Dkt. entry no. 2.) In response, the defendant Safco Products
Co. ("SPC") moves to either (1) dismiss the complaint for
improper venue under Federal Rule of Civil Procedure ("Rule")
12(b)(6), or (2) transfer the action to the United States
District Court for the District of Minnesota under Section 1404.
(Dkt. entry no. 4.)
The Court will (1) decide the order to show cause and the
motion without oral hearing and on the papers under Rule 78, (2)
vacate the order to show cause, (3) grant the part of the motion
seeking to transfer the action, and (4) transfer the action to
the District of Minnesota.
SPC in an asset purchase agreement ("Agreement") agreed to
pay over $2 million for the assets of the plaintiff Dataflex, LLC ("DLLC"). (Compl., at 1.) The "post-closing payments were
subject to certain offsets as specified in the Agreement."
(Id.) SPC paid about $1.4 million at closing. (SPC Br., at 3.)
SPC then offset part of the first post-closing payment.
(Compl., at 1-2.) According to the plaintiffs, DLLC:
had a contract with [a nonparty customer
("Customer")], an Atlanta based company. . . . After
the execution of the [Agreement], [the Customer] had
items which it sought to return. Prior to [the
Customer] notifying DLLC of these items pursuant to
the [DLLC-Customer] contract, [the Customer] notified
[SPC] as they erroneously believed that [SPC]
purchased those liabilities. [SPC], in turn, told
[the Customer] to destroy the items in question,
thereby depriving [DLLC] of the ability to recapture
the costs of those items through resale to merchants
of secondary items. . . . [SPC] then deducted the
cost of those items directly from the amount due to
[DLLC] pursuant to the [Agreement].
(Sheard Cert., at 1.) The plaintiffs, however, do not clarify (1)
the amount offset, or (2) whether the transaction with the
Customer is the only source of damages here.
SPC, in contrast, asserts it offset (1) about $143,500 for
"unpaid accounts receivable," (2) about $17,300 for inventory
purchased but not received, and (3) about $48,000 for "rebates
and allowances owed to vendors." (SPC Br., at 3; Wieberdink
Cert., at 1-2.) It also asserts:
Prior to closing, [DLLC] had sold [the Customer] a
substantial amount of discontinued product.
Post-closing, and prior to the first post-closing
installment, [the Customer] debited $81,029 against
the open receivable. [SPC] ultimately offset this
$81,029 amount against the first post-closing
installment. (SPC Br., at 11.) Thus, only part of the payment
withheld by SPC from the plaintiffs $81,029 out of
about $208,800 concerns items sold to the Customer.
SPC failed to "correct the deficiencies in the second
post-closing payment." (Compl., at 2.) The plaintiffs then
brought this action to recover damages for breach of the
Agreement, fraudulent misrepresentation, and tortious
interference with the contract with the Customer.
I. Section 1332 Jurisdiction
The parties are aware of the Court's jurisdictional concerns,
which are stated in the order to show cause. (See dkt. entry
no. 2.) SPC now alleges (1) the plaintiff Dan Sheard, who is a
New Jersey citizen, is the only member of DLLC, which is a
limited liability company, and (2) SPC is a Minnesota corporation
with a Minnesota principal place of business. (8-29-05 SPC Reply,
SPC now has properly alleged there is jurisdiction under
Section 1332. The Court will vacate the order to show
cause.*fn1 II. Venue
A. Forum Provision
The Agreement's Paragraph 13(j) titled "Governing Law;
Jurisdiction" states the "Agreement shall be governed and
interpreted in accordance with the laws of the State of New
Jersey, regardless of laws that might otherwise govern under
applicable principles of conflicts of laws." (Richardson Cert.,
Ex. A, Asset Purch. Agmt. ("Agmt."), at 20.) But SPC in moving
to either dismiss the complaint or transfer the action relies
on another part of Paragraph 13(j) ("Forum Provision"):
The parties agree that all proceedings with respect
to this Agreement (other than [Paragraph] 11) shall
be conducted in the state and federal courts located
in Minneapolis, Minnesota. Each of [DLLC] and Daniel
C. Sheard hereby submits to the personal jurisdiction
of the state courts of the State of Minnesota and the
Federal District Court for the District of Minnesota.
With respect to the location of such proceedings,
each of [DLLC] and Daniel C. Sheard irrevocably
waives (i) any objection which it or he may now or
hereafter have to the venue of any such enforcement
proceedings brought in such courts, and (ii) any
claim that any proceedings brought in any of these
courts has been brought in an inconvenient forum.
Paragraph 11 imposes, inter alia, a "non-competition"
obligation on the plaintiffs ("Non-Compete Clause"). They can:
not . . . develop, design, manufacture, sell, promote
or distribute or provide consulting services with
respect to or be involved with the design,
development, manufacture, sale, promotion or
distribution of products forming a part of [DLLC's]
product line or that are like or similar to products forming a part
of [DLLC's] product line.
(Id. at 15.) Paragraph 11 has a separate forum clause:
[DLLC] and Sheard hereby confer jurisdiction to
enforce the covenants contained in [Paragraph] 11
upon the federal courts of any jurisdiction within
the United States in which it or he is committing an
act or acts alleged to be in violation of [Paragraph]
(Id. at 15-16.)
B. Proper Venue
The Court is vested with broad discretion to consider a
transfer of venue to a district where the action might have been
more-properly brought under Section 1404. See Jumara v. State
Farm Ins. Co., 55 F.3d 873, 875, 877 n. 3, 883 (3d Cir.
1. Prima Facie Showing by SPC
New Jersey is a proper venue for the action. But SPC has shown,
prima facie, that Minnesota is a more-proper venue.
i. Mandatory Language
The Forum Provision is mandatory, as it provides that (1)
litigation concerning the Agreement "shall" be conducted in
Minnesota, and (2) the plaintiffs "irrevocably waive" any
objection thereto. See Applied Card Sys. v. Winthrop Res.
Corp., No. 03-4104, 2003 WL 22351950, at *2-*3 (E.D. Pa. Sept. 23, 2003)
(granting part of motion seeking transfer to Minnesota, as
contract stated "venue shall be in Minnesota"); Hoffer v.
InfoSpace.com, Inc., 102 F.Supp.2d 556, 571 (D.N.J. 2000)
(granting part of motion seeking transfer to Washington, even
though plaintiff was New Jersey citizen, as forum-selection
clause given "substantial consideration").
ii. Negotiated Language
The parties specifically negotiated over and thus the
plaintiffs were aware of the Forum Provision. SPC demonstrates
that during negotiations (1) its counsel prepared a draft
providing for a Minnesota forum and stating Minnesota law would
govern; (2) plaintiffs' counsel rejected the entire proposed
provision; and (3) SPC's counsel then submitted a compromise
version New Jersey law and Minnesota venue which was executed
in Paragraph 13(j). (SPC Br., at 3; Bartlett Cert., Exs. B & C,
Correspondence from Pls. Counsel during Negotiations.) The
plaintiffs do not dispute this. (See generally Sheard Cert.;
A contractual provision that has not been specifically
negotiated barring an inducement by fraud, overreaching, or
coercion is enforceable. See Coleman v. Lazy Days RV Ctr.,
No. 04-2198, 2005 WL 1154492, at *4 (M.D. Pa. May 6, 2005)
(rejecting argument that non-negotiated boilerplate is
unenforceable in granting part of motion seeking transfer); Barbuto v. Med.
Shoppe Int'l, 166 F.Supp.2d 341, 346-47 (W.D. Pa. 2001) (same);
Wilson of Wallingford v. Reliable Data Sys., No. 95-6686, 1995
WL 734232, at *1-*2 (E.D. Pa. Dec. 5, 1995) (rejecting arguments
in granting part of motion seeking transfer that plaintiff's
representative did not read or bargain for forum clause). A
provision such as the Forum Provision that results from
specific negotiations is at least equally enforceable. See
Applied Card, 2003 WL 22351950, at *3 (stating in granting
part of motion seeking transfer to Minnesota freely negotiated
contract not result of fraud or overreaching).
SPC's Minnesota-venue preference has significant weight, as (1)
it is consistent with the Forum Provision, and (2) SPC is a
citizen of, and has its principal place of business in,
Minnesota. See Shore Slurry Seal v. CMI Corp.,
964 F.Supp. 152, 157 (D.N.J. 1997) (granting part of motion seeking transfer
iv. Minnesota's Interest
SPC operates out of Minnesota. Thus, the Minnesota courts have
a strong interest in overseeing its conduct. See Applied
Card, 2003 WL 22351950, at *3 (granting part of motion by
Minnesota corporation seeking transfer to Minnesota); Cadapult
Graphic Sys. v. Tektronix, Inc., 98 F.Supp.2d 560, 568 (D.N.J.
2000) (granting part of motion by Oregon corporation seeking
transfer to Oregon). v. Plaintiffs' Sophistication
The plaintiffs agreed to sell assets valued at over $2 million,
and were represented by counsel during the underlying
negotiations and execution of the ensuing agreement. Given the
amount at issue and the presence of counsel, the plaintiffs must
be considered to have been "sophisticated" entities and thus
well aware of the Forum Provision's implications when they
executed the Agreement. Applied Card, 2003 WL 22351950, at *3
(granting part of motion seeking transfer); Barbuto,
166 F.Supp.2d at 347 (same); Shore Slurry, 964 F.Supp. at 156
2. Plaintiffs' Burden
The plaintiffs now have the burden of showing why (1) they
should not be bound by the Forum Provision, and (2) the action
should not be transferred to Minnesota. See Shore Slurry,
964 F.Supp. at 156. They have failed to meet this burden.
The plaintiffs argue "it would be a severe hardship for
[Sheard] to travel back and forth to Minnesota to litigate this
case," and New Jersey "would be far more convenient." (Sheard
Cert., at 2. See Pls. Br., at 4-5.)
This argument is without merit. The plaintiffs, by executing
the Agreement containing the Forum Provision, "bear the risks of
such inconvenience." Cadapult, 98 F.Supp.2d at 568 (granting
part of motion seeking transfer to Oregon). Also, Minnesota "is not a remote alien forum" that "would effectively
deprive [the plaintiffs] of their day in court." Barbuto,
166 F.Supp.2d at 347 (cites and quotes omitted) (rejecting argument
in granting part of motion seeking transfer that plaintiffs
lacked resources to litigate elsewhere and could not afford time
away from business).*fn3
The plaintiffs argue the Forum Provision does not apply to the
cause of action to recover damages for tortious interference with
the contract with the Customer. (Pls. Br., at 5.)
This argument is without merit. That cause of action is
"inseparably implicated" with the causes of action to recover
damages for breach of the Agreement, as an interpretation of the
Agreement will be essential to resolving whether SPC acted
properly in offsetting the payment. Source Buying Group v. Block
Vision, No. 99-5412, 2000 WL 62972, at *2 (E.D. Pa. Jan. 14,
2000) (granting part of motion seeking transfer to Florida).
See Crescent Int'l v. Avatar Cmts., 857 F.2d 943, 944 (3d
Cir. 1988) (affirming order granting motion to dismiss for
improper venue; stating "[a]lthough only one . . . claim is
based on a breach of contract theory, all of them [ including
fraud and tortious interference claims ] involve allegations arising out of the
agreement implicating its terms").*fn4
iii. Other Jurisdictional Provision
The plaintiffs argue they are:
reasonably sure that [SPC] will seek to interpose a
claim against [them] for breach of the [Non-Compete
Clause] of the [Agreement]. This creates a
jurisdictional issue in that the [Non-Compete Clause]
was specifically taken out of the [Forum Provision]
and venue was specifically laid in New Jersey. If
[SPC] is successful in its present motion and this
matter is transferred to Minnesota, then, in that
event, [we] will be forced to move before the
Minnesota District Court to bifurcate this case and
try one part in Minnesota and the other part in New
(Sheard Cert., at 2. See Pls. Br., at 7.)
This argument is without merit. First, SPC avers that it "is
not [SPC's] intent to bring any such claim." (SPC Reply Br., at 5
n. 1.) Second, the plaintiffs have failed to allege any facts
demonstrating that the Non-Compete Clause has any relevance here.
Third, the plaintiffs' assertion concerning future motion
practice is pure conjecture and without legal support.
iv. New Jersey Law
The plaintiffs argue that a federal court in New Jersey should
oversee this action because New Jersey law will apply. (Sheard
Cert., at 3; Pls. Br., at 7.) This argument is without merit. The United States District
Court for the District of Minnesota is perfectly capable of
addressing New Jersey law. See Donatelle Plastics v. Stonhard,
Inc., No. 01-1429, 2002 WL 31002847, at *5 n. 4 (D. Minn. Sept.
5, 2002) (stating on agreement governed by New Jersey law
"Minnesota courts are committed to honoring an agreement, entered
into by parties in a contract in good faith, to have the law of
another jurisdiction govern their contractual relationship").
See also Ferris, Baker Watts, Inc. v. Deutsche Bank Sec.,
Nos. 02-3682 & 02-4845, 2004 WL 2501563, at *1-*8 (D. Minn. Nov.
5, 2004) (addressing New Jersey Racketeer and Corrupt Practices
Act); Cahalan v. Rohan, No. 03-2216, 2004 WL 2065056, at *2-*4
(D. Minn. Sept. 2, 2004) (addressing New Jersey Workers'
Compensation Act), aff'd, 423 F.3d 815 (8th Cir. 2005); St.
Paul Mercury Ins. Co. v. JBA Int'l, Nos. 01-297 & 01-2161, 2004
WL 1908317, at *2-*5 (D. Minn. Aug. 19, 2004) (addressing New
Jersey case law concerning insurance coverage).
C. Transfer, Not Dismiss
The Minnesota factors outweigh the New Jersey factors, and thus
the Court will grant the part of the motion seeking to transfer
the action. But the Court will deny the part of the motion
seeking dismissal of the complaint, because "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."
Salovaara v. Jackson Nat'l Life Ins. Co., 246 F.3d 289, 299 (3d
Cir. 2001). A federal venue is available in compliance with the
Forum Provision, i.e., the District of Minnesota. Cf.
Spectracom, Inc., v. Tyco Int'l, No. 03-3845, 124 Fed.Appx. 75,
76-77 (3d Cir. Oct. 27, 2004) (affirming judgment dismissing
complaint without prejudice to refile in state court in Arapaho
County, Colorado, as forum-selection clause mandated action
"shall only be brought" in that county, which lacked federal
The Court will (1) vacate the order to show cause, (2) grant
the part of the motion seeking to transfer the action, (3) deny
the part of the motion seeking dismissal of the complaint, and
(4) direct the Clerk of the Court to transfer the action to the
District of Minnesota. The Court will issue an appropriate order.
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