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DATAFLEX LLC v. SAFCO PRODUCTS CO.

October 18, 2005.

DATAFLEX, LLC, et al., Plaintiffs,
v.
SAFCO PRODUCTS CO., Defendant.



The opinion of the court was delivered by: MARY COOPER, District Judge

MEMORANDUM OPINION

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.

  BACKGROUND

  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.

  DISCUSSION

  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, at 1.)

  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.
(Id.)
  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 ...

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