James R. Sacca, U.S. Bankruptcy Court Judge.
This case involves a broken business relationship between a German yacht manufacturer and its exclusive dealer in the United States, the Debtor in this case, the contracts for which provide that any litigation arising under or in connection with the contracts must be brought in Germany.
Debtor Bavaria Yachts USA, LLLP ("BUSA," "Plaintiff," or "Debtor") commenced this adversary proceeding with some claims arising under state law, such as fraud, negligent misrepresentation,
Yachtbau is a German GmbH — or a German company with limited liability — that manufactures motor and sailing yachts, with its principal place of business in Giebelstadt, Germany. [Defendant's Answer to Amended Complaint and Counterclaim ("Def.'s Answer") ¶ 9]. BUSA is a Georgia limited liability limited partnership with its principal place of business in Atlanta, Georgia. [Def.'s Answer ¶ 8]. Generally, the parties' business relationship consisted of BUSA acting as the exclusive dealer in the United States selling yachts made by Yachtbau [Doc. 17 at p. 4] pursuant to separate contracts for the purchase and sale of the sailboats and motorboats, respectively (collectively, the "Dealer Contracts"), but there was also an agreement in July 2016, all of which are discussed below.
Yachtbau and Horizon Bavaria USA, LLC
The agreement covered various topics including that BUSA could not be involved with Yachtbau's competitors. [Doc. 10, Ex. 2 ¶ 4.1]. Additionally, the Second Sailboat Contract provided BUSA "a discount of 2% as a lump sum consideration for all required warranty repair work performed by [BUSA]." [Doc. 10, Ex. 2 Annex. 3]. The Second Sailboat Contract also contained provisions that required BUSA to perform customer service, warranty, maintenance, and repair work for the boats as requested by those who purchase the boats. [Amended Complaint ¶ 25]. BUSA was obligated to pay out of pocket for these costs and would be provided a 2% lump sum discount from BUSA's purchase price of the boat. Id. However, BUSA claims these repair costs greatly exceeded 2% of the retail price. [Amended Complaint ¶ 26]. BUSA alleges the design and quality of the yachts were not suitable for a United States customer and Yachtbau promised it would resolve the issues. [Amended Complaint ¶¶ 19-20]. As BUSA made the necessary repairs to the yachts, it alleges that the 2%
On May 15, 2013, Yachtbau and Horizon Bavaria USA, LLLP entered into an amendment to the Second Sailboat Contract (the "Amendment to the Second Sailboat Contract"). [Doc. 10, Ex. 4]. BUSA alleges that this agreement was "based on continued confidence in BUSA's investments, brand building, and customer satisfaction." [Amended Complaint ¶ 16]. At this time, BUSA claims it invested another $350,000 in its relationship with Yachtbau. [Amended Complaint ¶ 17]. BUSA also argues that Yachtbau was aware that the additional investment was based on the extended commitment between the parties and Yachtbau's commitment to accelerate actions to remedy the design flaws documented in the previous years. [Amended Complaint ¶ 17].
After the Amendment to the Second Sailboat Contract, BUSA claims the design issues and quality flaws continued. [Amended Complaint ¶ 18]. Specifically, BUSA contends the design and manufacturing defects included significant leaks and sinking, persistent failures of air conditioning units, generator sets and electrical systems, motor yacht engine rooms excessively and prematurely rusting, and fire suppression system failures. [Amended Complaint ¶ 27]. BUSA argues it continued to invest in its relationship with Yachtbau because of the continued promises from Yachtbau to remedy the flaws and the ability to recover after-sale support costs not to exceed the 2% allowance provided in the Dealer Contracts. Id. Despite alleged defects in the inventory, the parties began discussion of expanding BUSA's dealership to include motor yachts. And, on September 25, 2014, Yachtbau and Bavaria Motor Yachts USA, LLC
The Motorboat Contract was amended (the "Amendment to the Motorboat Contract") on September 29, 2014. [Doc. 10, Ex. 6]. BUSA documented and identified therein specific improvements needed to make these boats "relevant to the U.S. market demands," which BUSA alleges Yachtbau acknowledged in order to have BUSA continue to invest in their relationship. [Amended Complaint ¶ 23]. BUSA alleges that it funded its operations related to the Motorboat Contract and the Amended Motorboat Contract with an initial equity investment of $300,000, plus $300,000 secured by BUSA, and one final investment totaling $1,450,000 by mid-2015. [Amended Complaint ¶ 24]. Further, an additional $2,050,000 was allegedly invested "by numerous individuals based on commitments made by Bavaria Yachtbau." Id. When combined with the original investments, the total capital invested by BUSA in its relationship with Yachtbau (initial investments, interim investments, and those investments surrounding the Motorboat Contract) was allegedly more than $4,500,000 at the end of 2015. Id.
Yachtbau contends that the parties had subsequently begun negotiating termination of their business relationship, and BUSA sent a demand letter threatening to sue Yachtbau unless it bought BUSA's equity in Yachtbau. [Def.'s Counterclaim ¶¶ 29-30]. On October 4, 2016, Yachtbau terminated the Dealer Contracts. Yachtbau contends that BUSA threatened to file for bankruptcy in attempts to recover its equity from Yachtbau. [Def.'s Counterclaim ¶ 32]. BUSA filed for Chapter 11 relief two weeks later on October 18, 2016 at which time BUSA was left holding an inventory of ten boats (the "10 Boats"). BUSA argues that when it did attempt to sell the 10 Boats, Yachtbau continually thwarted BUSA's efforts, both before and after it filed for bankruptcy. [Amended Complaint ¶ 38]. BUSA alleges that in the end, it had invested well over $5,000,000 of its own capital in its business relationship with Yachtbau. [Amended Complaint ¶ 37].
Yachtbau has filed two proofs of claims in this case: Proof of Claim No. 26 and its amendment for $2,745,134.41 ("Claim 26") and Proof of Claim No. 27 for $1,786,783.72 ("Claim 27"). Both claims were filed on January 9, 2017 and the amendment to Claim 26 was filed on February 17, 2017. Although Yachtbau checked the box on Claim 26 to indicate the claim was secured by goods, it also indicated that it was the owner of the goods — the 10 Boats sold and shipped to BUSA under the Dealer Contracts which were still in BUSA's possession on the bankruptcy petition date. Yachtbau designated that Claim 27 was unsecured and represents all the debt allegedly owed for goods, shipping costs, and other services surrounding the relevant agreements between the parties. BUSA objects to both of Yachtbau's proofs of claim. In addition to a few creditors with disputed claims, including Yachtbau, BUSA identified on its Schedule of Liabilities filed with the Court more than 65 creditors with undisputed claims of more than $2,000,000, almost all of which are located in the United States. Yachtbau alleges that some of those claims are overstated or improperly characterized as loans instead of capital contributions or perhaps may be debts owed by affiliates of BUSA. At the time BUSA filed for bankruptcy relief, all of its offices were located in the United States and its corporate offices were located in Georgia.
Yachtbau then filed its Answer to Amended Complaint and Counterclaim [Doc. 17] and the Motion now before the Court. Yachtbau has indicated it does not consent to entry of final orders of judgment for the claims asserted by BUSA. Yachtbau's Answer to Amended Complaint and Counterclaim also contained a counterclaim asking for a declaratory judgment declaring that German law governs the ownership of the 10 Boats, but even if it does not, that the 10 Boats are not property of the bankruptcy estate. BUSA, on the other hand, contends the rights and interests of the parties in the 10 Boats are governed by the Uniform Commercial Code and because Yachtbau did not perfect a security interest in the 10 Boats, the 10 Boats are unencumbered assets of the bankruptcy estate.
BUSA then filed a Renewed Response in Opposition to Defendant's Renewed Partial Motion to Dismiss. [Doc. 28]. Yachtbau subsequently filed its Reply in Support of the Renewed Partial Motion to Dismiss. [Doc. 32]. A hearing was held on the Motion
BUSA's Amended Complaint includes claims brought under state law and the Bankruptcy Code. Yachtbau's Motion prays for the Court to dismiss certain claims on essentially two theories: (1) BUSA's non-core claims should be dismissed under the doctrine of forum non conveniens, or (2) BUSA has failed to state a claim upon which relief can be
First, Yachtbau alleges that the following claims are non-core and related to the Dealer Contracts and, therefore, governed by the forum selection clauses in the Dealer Contracts which should result in them being dismissed under the doctrine of forum non conveniens: fraud in the inducement, negligent misrepresentation, unjust enrichment, breach of implied warranty of merchantability, breach of implied warranty of fitness for a particular purpose, and tortious interference with contract (collectively, the "State Law Claims"). BUSA disputes that the State Law Claims are related to and governed by the Dealer Contracts and their forum selection clauses. Additionally, BUSA argues the forum selection clauses in the Dealer Contracts are not valid and thus not enforceable.
The claims in this Adversary Proceeding can be summarized as follows:
BUSA's State Law Claims BUSA's Bankruptcy Claims Fraud in the Inducement Avoidance and Recovery of Preferential Transfers Pursuant to 11 U.S.C. § 547 & 550 Negligent Misrepresentation Avoidance and Recovery of Preferential Transfers Pursuant toll U.S.C. § 548(a)(1)(b) & 550 Unjust Enrichment Fraudulent Transfers Under State Law Breach of Implied Warranty of Merchantability Claim to Determine Validity, Priority, or Extent of Yachtbau's Interest in the 10 Boats Breach of Implied Warranty of Fitness for a Claim Objection Particular Purpose Tortious Interference with Contract Equitable Subordination
Second, Yachtbau argues that BUSA has failed to state a claim upon which relief can be granted for the following claims: fraudulent inducement, negligent misrepresentation, unjust enrichment, tortious interference, and equitable subordination.
Yachtbau argues that because the State Law Claims are all non-core claims the forum selection clauses should apply to them. BUSA counters by arguing that (a) its claims do not arise under the Dealer Contracts and, therefore, are not subject to the forum selection clauses, (b) if the clauses are applicable, they are not valid because they are unreasonable and (c) the clauses are not enforceable because the State Law Claims are core claims. At the conclusion of the hearing on the Motion, the Court asked the parties to submit supplemental briefs on how the doctrine of forum non conveniens analysis is affected by BUSA's objection to Yachtbau's proof of claim in the underlying bankruptcy, which includes an allegation that BUSA is entitled to set off Yachtbau's claim based on the alleged damages that BUSA incurred pursuant to an alleged breach of contract by Yachtbau and any recovery on the State Law Claims.
Yachtbau argues that a breach of contract claim would still be governed by the doctrine of forum non conveniens and, even that claim was not governed by the doctrine, this would not affect the analysis for any of the other State Law Claims because they are non-core claims. In contrast, BUSA argues that Yachtbau subjected itself to this Court's equitable jurisdiction when it filed a proof of claim and the allowance or disallowance of a claim is a core proceeding. The Court finds that although the State Law Claims here are statutorily core under § 157(b)(2), constitutionally they are non-core proceedings
A bankruptcy court's jurisdiction extends to "all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). Subject to constitutional limits, bankruptcy courts exercise power pursuant to 28 U.S.C. § 157. Further, a bankruptcy court may enter a final judgment in a core proceeding. 28 U.S.C. § 157(b)(1). Core proceedings are those that implicate the property of the bankruptcy estate, invoke a substantive right created by the Bankruptcy Code, or exist exclusively in the bankruptcy context. Wortley v. Bakst, 844 F.3d 1313, 1318 (11th Cir. 2017). A bankruptcy court may also hear non-core proceedings that are "otherwise related to a case under title 11." 28 U.S.C. § 157(c)(1). Non-core proceedings are those that exist "had there been no bankruptcy, [and the] action could have proceeded in state court and would be virtually identical," but the bankruptcy court cannot issue final judgments on those claims. Cook v. Kmart Corp., No. 2:07-CV-0068-RWS, 2007 WL 2331072, at *2 (N.D. Ga. Aug. 10, 2007). Here, because the State Law Claims are derived from state law and could have proceeded absent the bankruptcy, they would generally be considered to be "related to," non-core claims. See, e.g., In re High-Top Holdings, Inc., No. 16-1007-WHD, 2016 WL 3135790 (Bankr. N.D. Ga. May 16, 2016) (finding fraud in the inducement as a non-core claim); Vision Bank v. Platinum Invs., L.L.C., No. 11-00093-KD-B, 2011 WL 2144547 (S.D. Ala. May 11, 2011) (finding negligent misrepresentation is a non-core claim); In re Flyboy Aviation Props., LLC, 525 B.R. 510 (Bankr. N.D. Ga. 2015) (finding tortious interference is a non-core claim).
Additionally, "[e]ven if a proceeding would not otherwise fall within the core jurisdiction of the bankruptcy court," § 157(b)(2) provides a statutory list of core proceedings making "an otherwise non-core action against [a] creditor by the estate... into an action within the bankruptcy court's equitable jurisdiction." Elec. Mach. Enters., Inc. v. Hunt Constr. Grp., Inc. (In re Elec. Mach. Enters., Inc.), 416 B.R. 801, 867-68 (Bankr. M.D. Fla. 2009). The statutory list of core proceedings includes the "allowance or disallowance of claims against the estate" and "counterclaims by the estate against persons filing claims against the estate." 28 U.S.C. §§ 157(b)(2)(B) and (b)(2)(C). As such, when a matter falls in the ambit of § 157(b)(2), the entire proceeding will be under the bankruptcy court's jurisdiction even though it may involve non-core claims.
However, the Supreme Court in Stern v. Marshall held that a bankruptcy court lacks constitutional authority to enter a final judgment on a state law "counterclaim that is not resolved in the process of ruling on a creditor's proof of claim." 564 U.S. 462, 131 S.Ct. 2594, 2620, 180 L.Ed.2d 475 (2011). In determining whether a bankruptcy court has the authority to issue a final judgment, "the question is whether the action at issue stems from the bankruptcy itself or would necessarily be resolved in the claims allowance process." Id. at 2618; King Oil Field Servs. LLP v. PricewaterhouseCoopers, Monitor & Foreign Representative (In re Poseidon Concepts Corp.), 515 B.R. 811, 818 (Bankr. D. Colo. 2014) ("[The] Supreme Court recognized
In this matter, Yachtbau filed two proofs of claim in BUSA's Chapter 11 bankruptcy case. The Amended Complaint involves the allowance or disallowance of a claim against the estate under § 157(b)(2)(B) because it specifically objects to Yachtbau's claims and lien and the final treatment of and distribution on Yachtbau's claims will not be determined until the resolution of the claims in this adversary proceeding. Until Count X (Claim to Determine Validity, Priority or Extent of Yachtbau's Interest in the 10 Boats) and Count XI (Claim Objection) are resolved along with the other counts, the recovery on which could negate or reduce the amounts to be distributed to Yachtbau as pled in Paragraph 155 of the Amended Complaint, it can be argued that the amount of the claim held by Yachtbau cannot be ascertained and, as such, the instant adversary proceeding constitutes a counterclaim and is a core proceeding under § 157(b)(2)(C).
While it does appear that it would be necessary to resolve any counterclaim in order to resolve the amount of Yachtbau's claim, it does not appear that is what the Supreme Court meant in Stern. If that was the case, all counterclaims would constitutionally be core proceedings, but clearly the Supreme Court held otherwise because Stern itself involved a counterclaim. It appears that what the Supreme Court meant by the counterclaim being necessary to resolve the amount of the claim held by Yachtbau refers to whether BUSA's claims are "necessarily resolvable by a ruling on the creditor's proof of claim in bankruptcy." Id. at 2611. For example, and as applied to this case, Yachtbau filed two proofs of claim. One claim appears to be for the invoice value of the 10 Boats delivered to BUSA, the proceeds from the sale of which Yachtbau claims would have to have been paid to it pre-bankruptcy according to the Dealer Contracts.
The dissenting opinion in Stern also shows that the State Law Claims in this situation would be non-core claims based on the majority's decision. 564 U.S. 462, 131 S.Ct. 2594, 2629-30, 180 L.Ed.2d 475 (2011). The dissent uses the not so uncommon hypothetical situation wherein a tenant files for bankruptcy, the landlord files a claim for unpaid rent and the tenant asserts a counterclaim for damages resulting from the landlord's failure to fulfill its obligations and wrongful dispossession of the tenant based on misrepresentations to the state court. Those counterclaims, so observe the dissent, do not stem from the filing of the bankruptcy itself, would not necessarily be resolved in the claims allowance process and "it would require the debtor to prove damages suffered by the landlord's failures, the extent to which the landlord's representations to the housing court were untrue, and damages suffered
As such, under the Stern test, this Court may not issue a final judgment on the State Law Claims. However, the Court may still hear a proceeding that is statutorily core under § 157(b)(2) and has authority to enter an order denying a motion to dismiss under Rule 12 because when it does so it does not enter a judgment. Settlers' Housing Servs., Inc. v. Bank of Schaumburg (In re Settlers' Housing Servs., Inc.), 520 B.R. 253, 258-59 (Bankr. N.D. Ill. 2014).
Ultimately, even though the proceeding is statutorily core under § 157(b)(2) and this Court has jurisdiction to hear the claims, a forum selection clause may still be applicable. Determining the bankruptcy court's core versus non-core jurisdiction is not the same as determining whether venue is proper, and filing a proof of claim does not necessarily waive or defeat a forum selection clause. Envirolite Enters., Inc., 53 B.R. at 1011. Venue may still be improper even where the court has jurisdiction. Id. (finding defendant did not waive the forum selection clause where improper venue was raised in the answer). Because Yachtbau listed improper venue as one of its affirmative defenses in its Answer, this Court now turns to the applicability, validity, and enforceability of the forum selection clauses.
In its Response to Yachtbau's position that the forum selection clauses in the Dealer contracts apply here, BUSA argues that the July 2016 Agreement merged with the Dealer Contracts and, therefore, because the July 2016 Agreement does not have a forum selection clause, none of its claims are subject to a forum selection clause. Yachtbau countered that the July 2016 Agreement did not satisfy the merger doctrine and, therefore, the forum selection clauses in the Dealer Contracts still apply.
Under the doctrine of merger, contracts will merge when there is a subsequent, valid contract that is inconsistent but covers all the subject-matter in the original contract. Atlanta Integrity Mortg., Inc. v. Ben Hill United Methodist Church, Inc., 286 Ga.App. 795, 797, 798 n.4, 650 S.E.2d 359 (2007) (finding agreements did not merge where second agreement "merely [imposed] a maximum amount and method by which broker fees were to be paid"); Wallace v. Bock, 279 Ga. 744, 746, 620 S.E.2d 820 (2005) (finding agreement to purchase a house (original) and an escrow agreement (subsequent) did not merge). "[M]erger requires a showing of more than a similarity in subject matter." Wallace, 279 Ga. at 746, 620 S.E.2d 820.
The July 2016 Agreement covers specifics about future orders, payments, and sale of certain boats. However, it does not cover other topics in the Dealer Contracts, including trademarks, exclusivity requirements, marketing, repairs, warranties, disclosures, and more. The July 2016 Agreement is similar to the one in Wallace where the purchase agreement included construction of the house and the ability to convey title to real property while the escrow agreement only covered the construction of the house. 279 Ga. at 746, 620 S.E.2d 820. The topics in the July 2016 Agreement do not completely cover those in the Dealer Contracts, and thus the July
The matter is somewhat complicated here because some of BUSA's State Law Claims, or some portion of them, or the damages resulting from them, may arise under or be in connection with the July 2016 Agreement, which agreement does not have a forum selection clause. The Court will address the impact of that complication later in its discussion of the application of forum non conveniens to this case. Nevertheless, except to the extent the State Law Claims arise under or are in connection with the July 2016 Agreement and the claim for tortious interference the Court does find that the remaining portions of the State Law Claims do arise under or are in connection with the Dealer Contracts. Therefore, the Court must proceed to analyze the applicability of the doctrine of forum non conveniens to this case.
In its Motion, Yachtbau argues that the State Law Claims should be dismissed under the doctrine of forum non conveniens. "The essence of the common-law doctrine of forum non conveniens is that even when an action is brought in a court which has jurisdiction of the cause and of the parties and in which venue is proper, the court may decline to exercise jurisdiction and dismiss the action if another forum would be more convenient." Sherwood Invs. Overseas Ltd. v. Royal Bank of Scotland (In re Sherwood Invs. Overseas Ltd., Inc.), 442 B.R. 834, 836 (Bankr. M.D. Fla. 2010). Traditionally, the forum non conveniens analysis was very similar to that of a motion to transfer venue pursuant to 28 U.S.C. § 1404(a). Specifically, the moving party had to demonstrate (1) an adequate alternative forum is available, (2) the public and private factors weigh in favor of dismissal, and (3) the plaintiff can reinstate his suit in the alternative forum without undue inconvenience or prejudice. Sherwood Invs. Overseas Ltd., 442 B.R. at 836 (quoting Leon v. Millon Air, Inc., 251 F.3d 1305, 1311 (11th Cir. 2002)).
However, the forum non conveniens analysis changed with respect to matters involving forum selection clauses after the Supreme Court decision in Atlantic Marine Construction Co. v. United States District Court for the Eastern District of Texas, ___ U.S. ___, 134 S.Ct. 568, 187 L.Ed.2d 487 (2013). Atlantic Marine outlined a heightened standard to overcome a mandatory, valid forum selection clause.
Atlantic Marine, 134 S.Ct. at 579-80. As such, because the private interest factors evidenced by an agreed upon forum selection clause weigh in favor of the agreed upon forum, the plaintiff bears the burden of establishing the public interest factors disfavor a request to dismiss. GDG Acquisitions, LLC v. Gov. of Belize, 749 F.3d 1024, 1028 (11th Cir. 2014).
Before a determination can be made under the Atlantic Marine analysis, the Court must first determine whether the forum selection clauses are valid and enforceable. If the forum selection clauses are valid and enforceable, then the Atlantic Marine analysis will apply. Pappas v. Kerzner Int'l Bahamas Ltd., 585 Fed. Appx. 962, 967 (11th Cir. 2014). Yachtbau argues that the forum selection clauses in the Dealer Contracts are presumptively valid and when BUSA entered into the Dealer Contracts with such clauses, it waived the right to challenge the forum. BUSA disagrees and attacks the validity of the forum selection clauses in its Response to Yachtbau's Motion because they are so inconvenient that they are unreasonable and enforcement would be contrary to the public policy behind the Bankruptcy Code.
Generally, forum selection clauses are presumptively valid and enforceable.
There is no allegation that the forum selection clauses were a result of fraud or overreaching under the first factor. However, BUSA does argue that enforcement under these circumstances would be so seriously inconvenient it would be unreasonable. A clause will not be unreasonable because of a mere inconvenience or additional expense alone. Giuliano
BUSA does not argue that its status in bankruptcy is the only reason a German forum would be seriously inconvenient. Instead, BUSA argues that dismissing the claims at issue would have burdens that would render the new forum to be seriously inconvenient.
Unlike some other Chapter 11 cases, the Court finds that BUSA's financial where-withal, or the lack thereof, affects its ability to fairly litigate these claims in a foreign venue. According to BUSA's monthly operating report for June 2017 [Doc. 237 in main case], it only has about $217,000 of undisputed, unencumbered funds as of June 30, 2017 and this Court has approved payment of professional fees in the amount of about $170,000 that have not yet been paid as of that date, leaving a balance of less than $50,000 to fund both the litigation in this case and the administration of the bankruptcy case.
Additionally, substantial portions of this adversary proceeding are going to remain before this Court regardless of whether the State Law Claims are brought in Germany. Of the $8 million in damages BUSA seeks in its Amended Complaint, almost half relate to the recovery of claims that will most definitely be litigated in this Court, including the alleged preferential and/or fraudulent transfer of funds totaling $663,933.98, the determination of
Without the realistic ability to hire a lawyer in Germany, dismissing the State Law Claims here to compel BUSA to file them in Germany would be worse than a dismissal of the State Law Claims on the merits here because BUSA would not even have the right to appeal because the claims will never be brought. Accordingly, if BUSA is required to litigate the State Law Claims in Germany it will realistically lose its day in court because it cannot afford to do so. Therefore, BUSA has met its burden in showing that the forum selection clauses should not be enforced for that reason.
Furthermore,
Certainly, there is the public policy of enforcing a contract. Jefferson Cty. Comm'n v. Sargent Elec. Co. (In re Sargent Elect. Co.), 341 B.R. 514, 519 (Bankr. W.D. Penn. 2006). On the other hand, there is the public policy of centralizing bankruptcy proceedings, and there is a strong presumption in favor of maintaining the venue of an adversary proceeding where the bankruptcy is pending. In re Hechinger Inv. Co. of Delaware, Inc., 288 B.R. 398, 402 (Bankr. D. Del. 2003). This presumption, generally, "is not so strong as to abandon the forum selection clause if the proceeding is non-core." McCrary & Dunlap Constr. Co. v. CED Constr. Partners., Ltd. (In re McCrary & Dunlap Constr. Co.), 256 B.R. 264, 266 (Bankr. M.D. Tenn. 2000).
On the other hand, the presumption of maintaining venue in the chosen forum "is bolstered when, as here, the outcome of the proceeding will have a substantial impact on the administration of the bankruptcy case." Prithvi Catalytic, Inc. v. Microsoft Corp. (In re Prithvi Catalytic, Inc.), No. 14-02176-GLT, 2015 WL 1651433, at *14 (Bankr. W.D. Penn. Apr. 8, 2015). This is especially relevant in this case. Let us start with what this case is not. It is not simply one adversary proceeding or claim objection among many filed in a case and which proceeding, in and of itself, will have a minor impact on the administration and outcome of the bankruptcy case. For all practical purposes, the progress and resolution of this
"Because the bankruptcy system implicates interests far broader than the private rights of the two parties in question, it is not unusual for prepetition contract obligations, particularly those dictating forum ... to be modified or even ignored in a bankruptcy case." Walker v. Got'cha Towing & Recovery (In re Walker), 551 B.R. 679, 690 n.21 (Bankr. M.D. Ga. 2016) (finding an arbitration clause did not govern the core claims in the bankruptcy proceeding). The reasoning in Walker is persuasive in that the other unsecured creditors here should not be negatively affected by the contractual agreement between BUSA and Yachtbau. BUSA will likely not be able to pursue the State Law Claims if it is forced to litigate in Germany because of its limited financial resources which will complicate, if not make it impossible, to hire counsel in Germany. In the meantime, the bankruptcy estate would benefit by this Court efficiently and expediently deciding the issues even if the result is not favorable to BUSA. Therefore, if the State Law Claims are sent to Germany, and BUSA does actually litigate them, but the remainder of the bankruptcy remains with this Court, the case would be drawn out over time while the issue of how much BUSA is entitled to set off is resolved. This prolonged period would adversely affect the administration of the estate.
Ultimately, this Court finds BUSA has met its burden in establishing that the forum selection clauses should be found to be invalid. As such, the forum selection clauses will not apply to the State Law Claims. Nevertheless, the Court will address Yachtbau's argument of forum non conveniens, despite finding that the forum selection clauses are invalid.
Under the Atlantic Marine analysis, the private interest factors weigh entirely in favor of the chosen forum in the forum selection clause. Kolawole v. Sellers, 863 F.3d 1361, 1369 (11th Cir. 2017). As such, the analysis then "requires assessing the adequacy and availability of the proposed alternative forum, followed by balancing the public interests factors for and against granting dismissal for pursuit in the alternative forum." Petersen v. Boeing Co., 108 F.Supp.3d 726, 731 (D. Ariz. 2015).
The relevant public factors include the administrative difficulties flowing from court congestion, the local interest in having localized controversies decided at home, and the interest in having the trial in a forum that is familiar with the law. Stiles v. Bankers Healthcare Grp., Inc., 637 Fed.Appx. 556, 562 (11th Cir. 2016); Pappas v. Kerzner Int'l Bahamas Ltd., 585 Fed.Appx. 962, 967 (11th Cir. 2014). Nevertheless, the underlying consideration for a § 1404(a) motion, and similarly a forum non conveniens analysis, is whether a transfer or dismissal would promote "the interest of justice." Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 33, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988).
First, administrative difficulties flowing from court congestion can be persuasive as a factor in determining whether the public interests require a dismissal. A court's ability to adjudicate complex litigation can be assessed. Jacobs v. Terpitz (In re Dewey & LeBoeuf LLP), 522 B.R. 464, 479 (Bankr. S.D.N.Y. 2014) (finding Germany and New York would have the same administrative difficulties on either end because there are evidence and witnesses in both locations). It is apparent that both this Court and a court in Germany could handle the litigation and issues in this matter that are subject to the forum selection clauses.
However, the practicalities of dismissal of the State Law Claims raise a concern. Specifically, the entire bankruptcy case could be delayed based on the resolution of these State Law Claims. First, if the State Law Claims were dismissed, they would have to be refiled and brought before a German court. In the meantime, the progress of the Chapter 11 bankruptcy case would be adversely affected. The determination of whether BUSA was entitled to set off against Yachtbau's proof of claim is necessary before any distributions to other creditors could be made. Ultimately, there are practical concerns that affect not only the State Law Claims, but also this Chapter 11 bankruptcy proceeding and its more than 60 other creditors with potential claims exceeding $2 million. See Eastcott v. McGraw-Hill Global Educ. Holdings, LLC, No. 16-904, 2016 WL 3959076, at *3 (E.D. Penn. July 22, 2016) ("Plaintiff persuasively argues that the practicalities of a transfer to New York raise their own concerns, contending that the mechanics of transfer alone would cause delay, on top of added delay caused by relocation to a district where cases generally are disposed of at a slower pace."). This Court is not comfortable abdicating its ability to control the progress of the administration of this bankruptcy case and subjecting it to the preferences of another judge in another country who has his or her own concerns and priorities about the administration of his or her own docket. Therefore, this first factor weighs in favor of this Court retaining all of the State Law Claims.
The second public interest factor is the local interest in having the controversies decided at home. "This factor generally favors the venue where the acts giving rise to the lawsuit occurred." Steve Silver Co. v. Manna Freight Sys., Inc., No. 3:14-CV-2601-D,
More importantly though, the significance this adversary proceeding has to the administration of a related Chapter 11 bankruptcy case with than 60 creditors with potential claims of $2 million ultimately results in this Court having a greater interest in resolving this matter. Meijer, 2010 WL 1348668, at *7 (finding a court might have a stronger interest if there is a related bankruptcy proceeding or litigation pending). Yachtbau, will also benefit from the prompt and efficient administration of this adversary proceeding as it, too, will await any distribution it might receive. The mere fact that there is an adversary proceeding pending should not be enough; otherwise forum selection clauses would never apply in adversary proceedings because they are generally related to bankruptcy cases. But this adversary proceeding is different than most. As mentioned before, the creditors and the entire administration of this case are affected by this adversary proceeding and its outcome. Therefore, allowing the State Law Claims to remain before this Court will promote the efficient and economical administration of the estate. Impact Point Consulting, Inc. v. Dambowsky (In re Dambowsky), 526 B.R. 590, 607 (Banks. M.D.N.C. 2015) (finding the bankruptcy court was the most efficient forum to resolve the overlapping dischargeability issues).
The third factor is the interest in having the trial in a forum that is familiar with the law. Notably, the parties dispute what law governs this matter — German or Georgia law. Without making a finding as to which law governs this matter, the Court does acknowledge that both Georgia state law and German law provide potential avenues of recourse for BUSA. See INTRODUCTION TO GERMAN LAW 129, 189, 347 (Mathias Reimann & Joachim Zekoll eds., 2d ed. 2005); Civil Code/BGB, German Law Archive, https://germanlawarchive.iuscomp.org/?page_id=611 (last visited September 29, 2017).
Finally, some courts have also considered judicial economy in the analysis of weighing the public interest. In Bollinger Shipyards Lockport, L.L.C. v. Huntington Ingalls Inc., a non-bankruptcy case, the district court found the public interest in judicial economy weighed heavily in favor of denying the motion to transfer venue. No. 08-4578, 2015 WL 65298, at *4 (E.D. La. Jan. 5, 2015). Other courts have considered the percentage of the claims subject to a forum selection clause to all of the claims in the litigation, as well, and found that judicial economy favored litigating all the claims together. Eastcott, 2016 WL 3959076, at *3 ("The public interest factors support retaining this action."); In re LMI Legacy Holdings, Inc., 553 B.R. 235, 241-42, 257-58 (Bankr. D. Del. 2016)(interest of judicial economy is better served by retention of claim such that it outweighs deference to a valid forum selection clause).
Similarly, this Court has been involved with this case since the bankruptcy petition was filed in October of 2016. This Court has become very familiar with the facts and legal disputes in the bankruptcy and adversary proceeding. And Counts VII and VII (avoidance and recovery of preferential transfer under §§ 547, 548, and 550), Count IX (fraudulent transfers under state law), Count X (determination of validity, priority or extent of Yachtbau's interest in the 10 Boats), Count XI (claim objection), and Count XII (equitable subordination) are undisputedly not governed by the forum selection clause, and this Court has found that the claims for tortious interference and those under the July 2016 Agreement are not subject to the forum selection clauses. Therefore, six or seven or more claims would remain before this Court even if the remainder were dismissed by this Court, which is half or more of the claims in the Amended Complaint. Judicial economy favors litigating these claims together as the court did in Eastcott and LMI. Further, all the claims in the Amended Complaint will likely revolve around the same or similar discovery, including witnesses and facts. It would not make sense for this Court to dismiss the State Law Claims for BUSA and Yachtbau to essentially have to litigate similar or related claims in two different venues. As such, judicial economy seems to favor that all these claims remain before this Court.
Courts have noted that the holding of Atlantic Marine is based on its facts: one plaintiff, one defendant and all of the claims — not just some — being subject to the forum selection clause with the contractually agreed upon forum being in the United States as opposed to another country and there was no related bankruptcy case involved. Martinez v. Bloomberg, 740 F.3d 211, 230 (2nd Cir. 2014)("forum selection clauses pointing to a foreign fora present distinct challenges not raised by clauses that merely point to other federal district courts."); LMI, 553 B.R. at 256 ("Atlantic Marine did not involve the bankruptcy specific concerns here.") Although the Supreme Court pointed out in Atlantic Marine that "courts should not unnecessarily disrupt the parties settled expectations" embodied in a forum selection clause, 134 S.Ct. at 583, the intervention of this bankruptcy case and the filing of this Adversary Proceeding with core and non-core claims that are not subject to the forum selection clauses has necessarily disrupted the parties settled expectations.
For the reasons previously discussed in this Order, this case presents the type of extraordinary circumstances that justify retaining venue over certain claims in the face of a forum selection clause. The Court finds that BUSA has met its high burden of establishing that the dismissal of the claims pursuant to the forum selection clauses is unwarranted. On account of the chilling effect enforcement of the forum selection clauses would have on the ability of BUSA to bring the State Law Claims in Germany and the consideration of the public interest factors which weigh in favor of retaining venue, the Court must deny Yachtbau's Motion to dismiss with respect to forum non conveniens.
Next, Yachtbau argues that the following claims alleged by BUSA should be dismissed for failure to state a claim: fraud in the inducement, negligent misrepresentation, unjust enrichment, tortious interference, and equitable subordination. Federal Rule of Civil Procedure 12(b)(6) — which applies to adversary proceedings pursuant to Bankruptcy Rule
Count I of BUSA's Amended Complaint is Fraud in the Inducement. A party alleging fraud must "state with particularity the circumstances constituting fraud." Fed. R. Bankr. P. 7009. Intent may be alleged generally, but a plaintiff must identify the precise misrepresentation or omission; the content of such statements; when, where, and by whom the statements were made; and what the defendant obtained as a result of the fraud. Ziemba v. Cascade Int'l, Inc., 256 F.3d 1194, 1202 (11th Cir. 2001).
Here, BUSA's Amended Complaint alleges sufficient facts to establish a claim of fraud in the inducement when Yachtbau allegedly induced BUSA to enter into contractual agreements. BUSA alleges Yachtbau made false statements, which include "that its sailboats were free from design and manufacture defects," that the 2% discount would cover all "customer service work, maintenance work, and repair work costs," and that Yachtbau promised to it would fix the defects in the yachts [Doc. 15 ¶ 40]. BUSA also claims that Yachtbau intended the false statements in order to persuade BUSA into entering agreements with it and to induce BUSA to act upon its statements. [Doc. 15 ¶ 41]. Therefore, BUSA's allegations in its Amended Complaint are sufficient to infer a plausible fraud in the inducement claim to survive a motion to dismiss.
Count II in BUSA's Amended Complaint, pled in the alternative, is for negligent misrepresentation. A claim for negligent misrepresentation has three elements: (1) defendant's negligent supply of false information to foreseeable persons; (2) the person's reasonable reliance on that information; and (3) economic injury proximately resulting from the reliance. SLW Partners, LP v. State Bank & Trust Co. (In re SLW Partners, LP), No. 11-5291, 2012 WL 5306246, at *4 (Bankr. N.D. Ga. Sept. 28, 2012). BUSA alleges that Yachtbau made statements that, but for its negligence, Yachtbau should have known to be false. [Doc. 15 ¶ 53]. As a result of such statements, BUSA contends it justifiably relied on them. [Doc. 15 ¶ 55]. Finally,
Alternatively, Count III is a claim for unjust enrichment. Unjust enrichment is an equitable claim and allows recovery where there is no contract between the two parties, but the first party provides the second party with a benefit that was induced or knowingly accepted, "such that it would be inequitable for the second party to retain the benefit without paying compensation." Anderson v. Citizens Fidelity Mortg. Corp. (In re Money), 375 B.R. 704, 709 (Bankr. N.D. Ga. 2007). BUSA argues that it conferred a benefit on Yachtbau — establishing Yachtbau's products and market in the United States — and that Yachtbau has not provided for any payment for the value thereof. However, BUSA fails to allege any real underpayment for the benefit it provided Yachtbau and merely alleges that it would be inequitable for BUSA to not receive a remedy. [Doc. 15 ¶¶ 66-68]. See In re Money, 375 B.R. at 710 ("The facts ... do not indicate that Citizens provided any benefit to Regions for which Citizens did not receive compensation or that there was any underpayment by Regions when it purchased the loan."). Further, it is clear from the record that there were multiple contracts between the two parties. Therefore, the allegations in the Amended Complaint do not sufficiently allege facts to allow an inference of liability under an unjust enrichment claim, so this claim must be dismissed.
A claim for tortious interference with contract is found in Count VI of BUSA's Amended Complaint. To prevail on a claim alleging tortious interference, a plaintiff must establish (1) improper actions or conduct by the defendant without privilege; (2) the defendants induced a breach of contract or caused a third party to discontinue or fail to enter into an anticipated business relationship with the plaintiff; and (3) the defendant's conduct proximately caused damage to plaintiff. Onbrand Media v. Codex Consulting, Inc., 301 Ga.App. 141, 150, 687 S.E.2d 168 (2009). Further, the defendant must be a stranger to the contract to which he interfered. Milon v. Bank of Am., N.A., No. 2014-CV-244860, 2015 WL 11251957, at *10 (N.D. Ga. Feb. 9, 2015) (granting motion to dismiss where defendant was hired to conduct a non-judicial foreclosure sale and all acts were within the scope of such duties as an agent). A defendant will not be a stranger if he has a legitimate economic interest in either the contract or a party to the contract. Bond Safeguard Ins. Co. v. Wells Fargo Bank, N.A., 2014 WL 12629942, at *5 (N.D. Ga. July 30, 2014) (granting motion to dismiss where defendant held interest in lot that made up the subdivisions that were being developed).
In this matter, BUSA has alleged that Yachtbau intentionally and unjustifiably interfered with BUSA's business relationships. [Doc. 15 ¶¶ 93-94]. Specifically, BUSA asserts that Yachtbau interfered with potential brokers who would sell the remaining yachts and potential buyers of the remaining yachts. As a result, BUSA claims it suffered damages when brokers refused to sell and buyers refused to buy the yachts. Id. There are no facts alleged establishing that Yachtbau was anything but a stranger to BUSA's alleged business
Count XII of BUSA's Amended Complaint is for equitable subordination. The three elements needed to establish such a claim are: (1) the claimant engaged in inequitable conduct; (2) the conduct injured creditors or gave unfair advantage to claimant; and (3) subordination of the claim is not inconsistent with the Bankruptcy Code. Citrus Tower Boulevard Imaging Cent., LLC v. Key Equip. Fin., Inc., 520 B.R. 892, 904 (Bankr. N.D. Ga. 2014). The burden of proof of an equitable subordination claim also varies based on the status of the creditor. Id. If the creditor is not an insider or fiduciary, the debtor must establish the conduct was more egregious such as fraud, spoliation, or overreaching. Id. BUSA alleges that Yachtbau is an insider because it exercised substantial, if not complete, control over BUSA. [Doc. 15 ¶ 160]. Further, BUSA argues Yachtbau acted inequitably, including promising to repair yachts as requested, ruining the value of the yachts, making false statements, and convincing BUSA to continue to enter agreements where it would provide money up front but Yachtbau failed to uphold its end. [Doc. 15 ¶¶ 166-67, 168, 174]. Additionally, BUSA claims that Yachtbau received an advantage and the other creditors have been injured because of delay tactics and intimidating conduct towards brokers and buyers. [Doc. 15 ¶¶ 167, 180]. Finally, BUSA contends that equitably subordinating Yachtbau's claims would not be inconsistent with the Bankruptcy Code. [Doc. 15 ¶ 183]. As such, BUSA has sufficiently pled facts that, if proven, could support a position that the purported misconduct provided Yachtbau with an unfair advantage such that its claim should be subordinated.
For the foregoing reasons, the Court
