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DATAFLEX LLC v. SAFCO PRODUCTS CO.
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
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 ...
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