XAVIER RODRIGUEZ, District Judge.
Defendants move to transfer this case to the district court for the District of Delaware pursuant to 28 U.S.C. § 1404(a) (docket no. 18) or, alternatively, to dismiss this case for improper venue (docket no. 38). After careful consideration, the Court will grant the motion to transfer.
Plaintiff Scantron is a Delaware corporation, and Plaintiff Harland Clarke Holdings ("Harland Clarke") is Scantron's parent company based in San Antonio, Texas. Scantron alleges that it is also headquartered in San Antonio, but Defendants dispute this fact and assert that Scantron is headquartered in Minnesota. See docket no. 18 at 1-2.
In 2010, Scantron purchased a business based in Bellevue, Washington known as GlobalScholar from non-party KUE Digital International, L.L.C. ("Digital").
On November 10, 2010, Harland Clarke sent a letter to Digital via Defendant Kalyanaraman Srinivasan (known as "Kal Raman"). The letter states, "Pursuant to
Scantron and Digital entered into a "Securities Purchase Agreement between Scantron Corporation and KUE Digital International, LLC" (the "Purchase Agreement") dated December 15, 2010.
Maron Decl. Ex. C § 11. 10 (emphasis added).
Various parties entered into additional agreements related to the transaction. These additional agreements are referenced in the Purchase Agreement, which defines the "Transaction Documents" as "this Agreement, the Escrow Agreement, the Transaction Incentive Plan, the Guarantees and the Restrictive Covenant Agreement." Section 11.08 of the Purchase Agreement, entitled "Complete Agreement," states, "This Agreement (including the exhibits hereto and the Disclosure Schedules) and the documents referred to herein (including the Escrow Agreement) contain the complete agreement between the Parties hereto and supersede any prior understandings, agreements or representations by or between the Parties, written or oral, which may have related to the subject matter hereof in any way." Maron Decl. Ex. C § 11.08. All of the Transaction Documents include a forum-selection clause like the one in the Purchase Agreement designating Delaware as the exclusive forum for disputes arising out of or related to the agreement and the transactions contemplated thereby.
As part of the sale, Scantron required Raman and Digital's primary equity holders to guarantee Digital's performance of certain obligations in the Purchase Agreement in proportion to their economic interests in Digital, through limited guarantees. Maron Decl. ¶ 8. The Purchase Agreement preamble states, "Whereas, concurrently with the execution and delivery of this Agreement, each of (i) Knowledge Universe Education L.P. ["KUE LP"], (ii) Ignition Venture Partners III, L.P., (iii) Ignition Managing Directors Fund III, LLC and (iv) the Key Employee [Kal Raman] has delivered to Buyer a limited guarantee, dated as of the date of this Agreement and effective as of the Closing (each, `Guarantee' and collectively, the `Guarantees')."
Under the Limited Guarantee signed by Scantron and Raman, subject to certain limitations, Raman guaranteed to Scantron "the due and punctual observance, performance and discharge of all of the payment and indemnification obligations of Seller under the Purchase Agreement (including such obligations that arise as a result of the non-performance by Seller of its obligations under the Purchase Agreement.") Maron Decl. Ex. E. Scantron agreed "that it shall not institute, and shall cause each of its Affiliates [including Harland Clarke] and representatives not to institute, directly or indirectly, any Action arising under, or in connection with, this Guarantee, the Purchase Agreement or the transactions contemplated thereby against the Guarantor or any Non-Recourse Party except for (i) claims by the Guaranteed Party against the Guarantor under and in accordance with this Guarantee or (ii) claims by the Guaranteed Party against Seller under and in accordance with the Purchase Agreement. Recourse against the Guarantor and/or the Seller in accordance with Actions permitted by clauses (i) and (ii) immediately above shall be the sole and exclusive remedy of the Guaranteed Party and all of its Affiliates against the Guarantor or any Non-Recourse Party in respect of any liabilities or obligations arising under, or in connection with, the Purchase Agreement or any of the other agreements contemplated thereby, or the
The Limited Guarantee signed by Scantron and KUE LP is substantially similar, except that Scantron agreed that it would not institute, and would cause each of its Affiliates not to institute, directly or indirectly, "any Action arising under, or in connection with, this Guarantee, the Purchase Agreement or the transactions contemplated thereby against the Guarantor or any Non-Recourse Party except for (i) claims by the Guaranteed Party against the Guarantor under and in accordance with this Guarantee, (ii) claims by the Guaranteed Party against Seller under and in accordance with the Purchase Agreement, or (iii) claims under and in accordance with the Restrictive Covenant Agreement." Maron Decl. Ex. D. Scantron agreed that "[r]ecourse against the Guarantor and/or the Seller in accordance with Actions permitted by clauses (i) through (iii) immediately above shall be the sole and exclusive remedy of the Guaranteed Party and all of its Affiliates against the Guarantor or any Non-Recourse Party in respect of any liabilities or obligations arising under, or in connection with, the Purchase Agreement or any of the other agreements contemplated thereby, or the transactions contemplated thereby, and such recourse shall be subject to the limitations described herein and therein." Id." "Non-recourse parties" include "(i) any former, current or future general or limited partners, stockholders, holders of any equity, partnership or limited liability company interest, officer, member, manager, director, employees, agents, controlling Persons, assignee or any Affiliates of the Guarantor [KUE LP] (other than Seller [Digital]) and (ii) any former, current or future general or limited partners, stockholders, holders of any equity, partnership or limited liability company interest, officer member, manager, director, employees, agents, controlling Persons, assignee or Affiliates (other than Guarantor) of any of the foregoing." Defendant Michael Milken is a Non-Recourse Party as defined in the Limited Guarantee between Scantron and KUE LP.
On April 4, 2013, the Chief Legal Officer of M & F Worldwide, a parent company of Scantron and Harland Clarke,
On June 17, 2013, Plaintiffs Scantron and Harland Clarke filed this lawsuit in Texas state district court against Defendants KUE LP, Knowledge Universe Education Holdings, Inc., Michael Milken, and Kal Raman. Plaintiffs allege that Milken co-founded and is Chairman of Knowledge Universe and that he "directly or indirectly owned, operated and controlled Knowledge Universe, and one of its many affiliated entities, KUE Digital International LLC." First Am. Compl. ¶ 14. Plaintiffs allege that Raman was the Chief Executive Officer of GlobalScholar and an officer of Knowledge Universe. Id. ¶ 8.
Plaintiffs allege that Milken and Raman, "through lies and deception, engineered the sale to Plaintiffs of GlobalScholar at a fraudulently inflated price." First Am. Compl. ¶ 8. Plaintiffs allege that they were induced into paying $135,000,000 to Digital to purchase GlobalScholar, id. ¶ 10, and that they "received and relied upon representations of Defendants in their collective decision to spend $135,000,000 to acquire" GlobalScholar, id. ¶ 12. See also id. ¶ 13 ("Scantron ... received and relied upon representations of Defendants in its decision along with Harland Clarke to spend $135,000,000 to acquire [GlobalScholar]."); ¶ 31 ("On January 3, 2011, based upon Defendants' representations, assurances, materials, and financial information, including the endorsements provided by Milken himself, Plaintiffs agreed to pay and did pay $135,000,000 for GlobalScholar."). The First Amended Complaint, currently the live pleading, asserts causes of action for violations of the Texas Securities Act, statutory fraud under the Texas Business & Commerce Code (fraud in a stock transaction), common-law fraud, fraud by nondisclosure, negligent misrepresentation, aiding and abetting fraud (against Milken only), conspiracy, and "actual and apparent authority." Plaintiffs do not assert any claims for breach of warranty or breach of contract.
Defendants Milken and Raman removed the case on the basis of diversity jurisdiction, asserting that the non-diverse defendants were improperly joined. Plaintiffs moved to remand, but later voluntarily dismissed non-diverse Defendants KUE L.P. and Knowledge Universe Education Holdings and withdrew the motion to remand.
Defendants moved to transfer the case to the district court for the District of Delaware under 28 U.S.C. § 1404(a). Section 1404(a) provides, "For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented." In the alternative, pending a decision from the Supreme Court in Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, Plaintiffs filed a motion to dismiss or transfer pursuant to Rule 12(b)(3), Rule 12(b)(6), and § 1406(a). After initial briefing was complete, the Supreme Court issued its decision in Atlantic Marine, holding that Rule 12(b)(3) and § 1406(a) were not appropriate procedural vehicles for enforcing a forum-selection clause when Plaintiffs' chosen venue was a proper venue under federal venue statutes. Because all parties agree that venue is proper in this district under the federal venue statutes, Defendants have withdrawn their motion under Rule 12(b)(3) and § 1406(a), but maintain their motion to dismiss under Rule 12(b)(6) in the event that the Court denies their motion under § 1404(a).
In Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, ___ U.S. ___, 134 S.Ct. 568, 187 L.Ed.2d 487 (2013), the Supreme Court held that a party may not enforce a forum-selection clause by seeking dismissal of the suit under § 1406(a) and Rule 12(b)(3) because those apply only when venue is "wrong" or "improper," as determined by federal venue laws. Rather, a forum-selection clause may be enforced through a motion to transfer under § 1404(a), which "permits transfer to any district where venue is also proper (i.e., `where [the case] might have been
In the typical § 1404(a) analysis, the district court weighs the relevant factors and decides whether, on balance, a transfer would serve "the convenience of parties and witnesses" and otherwise promote "the interest of justice." Id.
The parties dispute the extent to which Atlantic Marine controls this case. Plaintiffs emphasize that in Atlantic Marine all parties were signatories to the agreement containing the forum-selection clause and the transferee forum was a proper venue under the federal venue statutes. In contrast, Plaintiffs note, venue is not proper in Delaware under the federal venue statutes and not all parties are signatories to the agreements. Defendants contend that Atlantic Marine controls because Plaintiffs are bound by the forum-selection clauses in the agreements.
Under the plain language of § 1404(a), transfer may be made to either (1) any district where the action might have been brought or (2) any other district to which all parties have consented. Defendants argue that both subsections apply because the District of Delaware is a district where the action might have been brought based on the forum-selection
In deciding whether the parties have consented to venue in Delaware, the Court begins first with the language of the agreements containing the forum-selection clauses. It is undisputed that the purchase of GlobalScholar involved a number of Transaction Documents, and the Purchase Agreement specifies that the Purchase Agreement and the Transaction Documents contain the complete agreement between the Parties. Purch. Agrmt. § 11.08. Therefore, under the plain language of the contract and as a matter of law, the documents must be construed together to determine the scope and meaning of the parties' agreement. RESTATEMENT (SECOND) OF CONTRACTS § 202(2) (1981) ("A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together."); Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 840 (Tex. 2000) ("In appropriate instances, courts may construe all the documents as if they were part of a single, unified instrument."); Segovia v. Equities First Holdings, LLC, No. 06C-09-149-JRS, 2008 WL 2251218, at *9 (Del.Super.Ct. May 30, 2008) ("Not only must contracts be construed as whole documents, but multiple documents evidencing the same transaction must be construed together. When the parties have executed separate documents on the same day covering the same period of time and intend these documents to `operate as two halves of the same business transaction,' then the Court must treat them as one contract. This approach remains true even if the documents are `executed by a single party or by two or more parties, and even when some of the documents are executed by parties who have no part in executing the others.'"); Personal Security & Safety Sys., Inc. v. Motorola, Inc., 297 F.3d 388, 390 (5th Cir. 2002) ("We hold that the licensing agreement's arbitration provision governs claims arising out of the stock purchase agreement because the agreements were executed together as part of the same overall transaction and therefore are properly construed together.").
Two of the parties in this lawsuit — Scantron and Raman — are signatories to agreements containing forum-selection clauses. The "Parties" to the Purchase Agreement are defined as Scantron as Buyer and Digital as Seller. The forum-selection clause in the Purchase Agreement states that "each of the Parties" "irrevocably and unconditionally" submits "to the exclusive jurisdiction
The parties to the Limited Guarantee are defined as Scantron as Guaranteed Party and Raman as Guarantor. Its forum-selection clause states that "Each of the Guarantor and Guaranteed Party" submits "to the exclusive jurisdiction of any Delaware State court in New Castle County, or Federal court of the United States of America, sitting within New Castle County in the State of Delaware" "in any action or proceeding arising out of or relating to this Guarantee or the transactions contemplated hereby" and agrees "not to commence any such action or proceeding except in such courts."
Plaintiffs state that this lawsuit is not a lawsuit between the parties to the contracts about the contracts, and that Plaintiffs do not allege breach of contract or base their right to recover on the terms of the contract. Plaintiffs also contend that Harland Clarke is not a "Party" to the agreements and therefore is not bound by the forum-selection clause. Plaintiffs argue that they are "not specifically challenging Kal Raman's performance under his Limited Guarantee." Therefore, Plaintiffs argue, the forum-selection clauses do not apply to the claims or parties in this lawsuit.
The language in the forum-selection clauses — including claims "arising out of or related to" the agreements and the transactions contemplated thereby — is extremely broad. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 397-98, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) (labeling as "broad" a clause requiring arbitration of "[a]ny controversy or claim arising out of or relating to this Agreement"); Personal Security & Safety Sys., 297 F.3d at 393 ("Where, as here, an arbitration provision purports to cover all disputes `related to' or `connected with' the agreement, we have held that the provision is `not limited to claims that literally `arise under the contract,' but rather embrace[s] all disputes between the parties having a significant relationship to the contract regardless of the label attached to the dispute.'"); Nauru Phosphate Royalties, Inc. v. Drago Daic Interests, Inc., 138 F.3d 160, 164-65 (5th Cir.1998) (holding that when parties agree to an arbitration clause governing "[a]ny dispute ... arising out of or in connection with or relating to this Agreement," they "intend the clause to reach all aspects of the relationship.").
The only real issues are whether all the parties are bound by or may enforce the clause, and whether being bound by the clause equates to consent to venue under § 1404(a). Scantron and Raman, as signatories, are bound by and entitled to enforce the forum-selection clause in the Limited Guarantee, and the clause applies to Scantron's claims against Raman because Scantron's claims arise out of or relate to the Guarantee or the transactions contemplated thereby. The Limited Guarantee
Plaintiffs assert, however, that the presence of non-signatories Harland Clarke and Milken prevents enforcement of the forum-selection clause and transfer to Delaware because Harland Clarke has not consented to venue in Delaware and Milken cannot enforce the clause. Defendants argue that Harland Clarke's claims and both Plaintiffs' claims against Milken are "entirely barred by the Transaction Agreements" and that Plaintiffs cannot escape the requirements of the forum-selection clause by bringing claims that have been waived. And in any event, Defendants contend, Harland Clarke is bound by and Milken is entitled to enforce the forum-selection clause.
The relevant provisions in the Purchase Agreement and Limited Guarantees include the following:
In the Limited Guarantee between Scantron and KUE LP:
As noted above, Milken is a Non-Recourse Party.
Defendants argue that "Scantron thus covenanted, on its own behalf and on behalf of its affiliates including Harland Clarke, not to bring the claims Plaintiffs have now brought (i) by Harland Clarke, or (ii) against Milken anywhere, let alone outside of the forum selected in the contract." Docket no. 18-1 (Memo in Support) at 17. The Court need not decide whether the Transaction Documents preclude Harland Clarke from bringing suit or bar Plaintiffs' claims against Milken, and those issues are properly left for the Court that will be deciding the merits of Plaintiffs' claims.
Instead, the Court finds that the plain language of the Transaction Documents evidences the parties' intent that whatever claims were brought by Scantron or its Affiliates (including Harland Clarke) against Raman or Milken, those claims would be brought only "under and in accordance with [the] Guarantee," "under and in accordance with the Purchase Agreement," or "under and in accordance with the Restrictive Covenant Agreement," and subject to the limitations described therein. All of those agreements contain broad forum-selection clauses that encompass Plaintiffs' claims. Certain provisions in the Purchase Agreement and Guarantee recognize that there could be claims "arising from intentional fraud." By recognizing in the contract that certain entities could potentially bring claims "arising from intentional fraud" while also utilizing a broad forum-selection clause that governed "any action or proceeding arising out of or relating to this Agreement, the agreements delivered in connection with this Agreement, or the transactions contemplated hereby or thereby," the parties intended to encompass any claims "arising from intentional fraud" within the forum-selection clause.
Thus, to the extent Plaintiffs bring claims "arising from intentional fraud," those claims were contemplated by the Transaction Documents and are "under and in accordance with" the Purchase Agreement or Guarantee. Further the claims arise out of or relate to the agreements and the transactions contemplated thereby, and thus are subject to the broad forum-selection clauses in the Agreements. The Court concludes that the language of the contract itself is sufficient to bind Scantron and Harland Clarke to the forum-selection clause for the claims asserted in this lawsuit. Nevertheless, the Court will consider whether background principles of contract law bind Harland Clarke to the forum-selection clause.
Harland Clarke contends that its claims, which may only be brought under and in accordance with the Purchase Agreement or Guarantee, are nevertheless not subject to the forum-selection clauses because those only apply to the Parties to the various agreements, and Harland Clarke is not a signatory party to any agreement with a forum-selection clause. In response, Defendants assert various theories under which Harland Clarke is bound by the forum-selection clause even though it is a non-signatory.
The parties dispute the issue of what law governs who is bound by the forum-selection clause. It is somewhat uncertain whether federal or state law governs this issue. Plaintiffs contend that the issue is governed by state law, specifically Texas law. Defendants argue that the issue is governed by federal law, and that even if state law controls, it would be Delaware law since that is the substantive law chosen by the parties in the agreements.
In Washington Mutual Finance Grp. LLC v. Bailey, 364 F.3d 260 (5th Cir.2004), the Fifth Circuit recognized that, in determining whether parties agreed to arbitrate a certain matter, courts apply the contract law of the particular state that governs the agreement. Id. at 264. However, it also noted that it "is often an uncertain question" whether state or federal law governs the determination whether a party should be compelled to arbitrate its claims. Id. at 267 n. 6. It found that "nearly all federal circuit courts faced with the specific question... — namely, to what extent a non-signatory is bound by an arbitration provision contained in a contract she is suing under — have applied the federal substantive law of arbitrability to resolve the issue." Id. Despite noting that the court in Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1075-75 (5th Cir.2002) had applied
Plaintiffs argue that the Supreme Court's decision in Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009) requires courts to apply state law to the issue of who is bound by an arbitration agreement (and by extension a forum-selection clause). In Carlisle, the Supreme Court clarified that while the FAA creates substantive federal law regarding the enforceability of arbitration agreements, "background principles of state contract law" control the interpretation of the scope of such agreements, "including the question of who is bound by them." 556 U.S. at 630, 129 S.Ct. 1896. The Supreme Court then explained that "`traditional principles' of state law allow a contract to be enforced by or against nonparties to the contract through `assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel.'" Id. In Todd v. Steamship Mutual Underwriting Association (Bermuda) Ltd., 601 F.3d 329, 336 (5th Cir.2010), the Fifth Circuit discussed Carlisle and noted that, "In Carlisle, the Supreme Court made clear that state law controls whether an arbitration clause can apply to nonsignatories."
Since Carlisle and Todd, some district courts have applied state law to the question of who is bound by an arbitration clause. See Galitski v. Samsung Telecommunications Am., LLC, No. 3:12-CV-4782-D, 2013 WL 6330645, at *3 & n. 8 (N.D.Tex. Dec. 5, 2013); Evans v. TIN, Inc., No. 11-2067, 2012 WL 2343162, at *4 (E.D.La. June 20, 2012) ("Because the FAA does not `purport [] to alter background principles of state contract law regarding the scope of agreements,' courts must look to state law to determine which contracts are enforceable against third parties."); Beach v. Green Tree Servicing, LLC, No. H-08-cv-2358, 2009 WL 1759595, at *3 (S.D.Tex. June 17, 2009). Some courts, however, have continued to find the question unsettled. See Graves v. BP America, Inc., 568 F.3d 221, 223 (5th Cir.2009) (decided two days after Carlisle and finding it unnecessary to decide whether federal or state law applies because "federal and state law dovetail to provide the same outcome"); see also Lemus v. CMH Homes, Inc., 798 F.Supp.2d 853, 859 (S.D.Tex.2011) (applying federal and Texas law without specifying which controlled). And others have continued to apply federal law to the question of who is bound without discussing Carlisle. See, e.g., Griffin v. ABN Amro Mortg. Group, Inc., 378 Fed.Appx. 437, 439-40 (5th Cir. 2010) (applying federal law of equitable estoppel).
Generally whether state or federal law applies will have no effect on the outcome, since state and federal law both utilize background principles of contract and agency law, and those principles are typically similar across jurisdictions. "[F]ederal courts have held that so long as there is some written agreement to arbitrate, a third party may be bound to submit to arbitration. Ordinary principles of contract and agency law may be called upon to bind a nonsignatory to an agreement whose terms have not clearly done so. Six theories for binding a nonsignatory to an arbitration agreement have been recognized: (a) incorporation by reference; (b) assumption; (c) agency; (d) veil-piercing/alter ego; (e) estoppel; and (f) third-party beneficiary." Hellenic Investment Fund, Inc. v. Det Norske Veritas, 464 F.3d 514, 517 (5th Cir.2006) (quoting Bridas S.A.P.I.C. v. Gov't of Turkmenistan, 345 F.3d 347,
Defendants assert that Harland Clarke is an express third-party beneficiary of the Purchase Agreement and is bound by its forum-selection clause, which encompasses Harland Clarke's claims. The Court agrees.
Non-signatory, third-party beneficiaries of agreements containing arbitration or forum-selection clauses may be bound to the clause, depending on the parties' intentions at the time the contract was executed. JP Morgan Chase v. Conegie ex rel. Lee, 492 F.3d 596, 600 (5th Cir.2007); Fleetwood Enters., 280 F.3d at 1075 ("Intermediate appellate courts in Texas have also held that non-signatories are bound by arbitration agreements where the non-signatories are third-party beneficiaries of the contracts.").
Under the Purchase Agreement, "any Person that is not a Party but, by the terms of Sections 6.02, 6.04 or Article VIII, is entitled to indemnification, shall be considered a third party beneficiary of this Agreement, with full rights of enforcement as though such Person was a signatory to this Agreement." Maron Decl. Ex. C at § 11.12. Section 8.02 of the Agreement, located in Article VIII, includes "Buyer [Scantron] and its Affiliates" in the definition of "Buyer Indemnified Parties" who are entitled to indemnification under the Purchase Agreement. "Affiliate" of any particular Person is defined as "any other Person controlling ... such particular Person," where "`control' means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities, Contract or otherwise."
Defendants argue that Harland Clarke is an "Affiliate" of Scantron, which makes it a Buyer Indemnified Party under § 8.02 and entitled to indemnification under Article III. Therefore, Harland Clarke is a third-party beneficiary of the Purchase Agreement under § 11.12.
Defendants also contend that Harland Clarke is bound to the forum-selection clause under the doctrine of direct benefits estoppel under Texas and federal law because it negotiated the Transaction Agreements and sought to directly benefit from the purchase of GlobalScholar. Defendants further contend that Harland Clarke is bound under estoppel theories adopted by Delaware courts. The Court agrees.
"Direct benefits estoppel is a type of equitable estoppel first applied in the arbitration context by federal courts and subsequently adopted by [Texas] courts." Carr v. Main Carr Dev., LLC, 337 S.W.3d 489, 497 (Tex.App.-Dallas 2011, pet. denied). Texas and federal law recognize that the doctrine of direct benefits estoppel can bind a non-signatory plaintiff to a forum-selection or arbitration clause. Direct benefits estoppel may apply when a nonparty seeks, through its claim, to derive a direct benefit from the contract containing the arbitration or forum-selection provision. In re Weekley Homes, L.P., 180 S.W.3d 127, 131 (Tex.2005). A nonparty may seek or obtain direct benefits by filing a lawsuit on the contract or by seeking and obtaining substantial benefits from the contract itself. Id. at 132-33.
In Weekley Homes, the adult child of a house purchaser brought a personal injury action against the builder to recover for asthma allegedly caused by dust from the house repairs. The adult child was not a signatory to the contract between the house purchaser and the builder that contained the arbitration clause. The Texas Supreme Court acknowledged that the plaintiff's claims arose from tort law and not the contract, but also found that she had "not merely resided in the home," but had "directed how Weekley should construct many of its features, repeatedly demanded extensive repairs to `our home,' personally requested and received financial reimbursement for expenses `I incurred' while those repairs were made, and conducted settlement negotiations with Weekley (apparently never consummated) about moving the family to a new home." Id. at 133. The Court held, "[h]aving obtained these substantial actions from Weekley by demanding compliance with provisions of the contract, Von Bargen cannot equitably object to the arbitration clause attached to them." Id. Thus, while the plaintiff "never based her personal injury claim on the contract, her prior exercise of other contractual rights and her equitable entitlement to other contractual benefits prevent[ed] her from avoiding the" arbitration clause. Id. at 135.
Defendants contend that Harland Clarke is bound to the forum-selection clause under the theory of direct benefits estoppel because it negotiated the Transaction Agreements and sought to directly benefit from the purchase of GlobalScholar. As noted, Plaintiffs allege that Harland Clarke conceived of the transaction, executed a nondisclosure agreement with Digital to facilitate negotiations, actively negotiated the terms of the Transaction Agreements, including through its President and CEO and its in-house counsel, and sent the letter formally proposing the acquisition of GlobalScholar by Harland Clarke or Scantron. In addition, the First Amended Complaint does not differentiate between Harland Clarke and Scantron as
Moreover, Scantron agreed that it and Harland Clarke would sue only "under and in accordance with" the Guarantees, the Purchase Agreement, and the Restrictive Covenant Agreement. The fact that Harland Clarke may sue only "under and in accordance with" the Agreements containing the forum-selection clauses is sufficient to bind Harland Clarke under a direct-benefits estoppel theory. When a party sues under an agreement, it has sufficiently embraced the agreement to be bound by a forum-selection clause therein, even with regard to its claims against a non-signatory such as Milken. See Wood v. PennTex Resources, L.P., 458 F.Supp.2d 355, 370 (S.D.Tex.2006) (considering a similar stock purchase agreement, direct-benefits estoppel may compel arbitration by a nonsignatory who sued a nonsignatory).
Defendants further assert that Harland Clarke is bound under Delaware law, which holds that forum selection clauses "bind nonsignatories that are closely related to the contractual relationship" such that it was foreseeable they would be bound. Delaware courts use a three-part inquiry to determine whether a nonsignatory to an agreement is bound by a forum selection clause in that agreement: First, is the forum selection clause valid? Second, are the non-signatories third-party beneficiaries, or closely related to, the contract? Third, does the claim arise from their standing relating to the agreement? If all three questions are answered in the affirmative, the forum selection clause will bind the nonsignatory. Baker v. Impact Holding, Inc., No. 4960-VCP, 2010 WL 1931032, at *3 (Del.Ch. May 13, 2010). Case law suggests two ways a party can be closely related to an agreement: (1) the party receives a direct benefit from the agreement or (2) it was foreseeable that the party would be bound by the agreement. Id. at *4.
Here, it is undisputed that the forum-selection clause is valid. As noted, Harland Clarke is a third-party beneficiary of the agreement.
It is undisputed that Plaintiff Scantron is a signatory to the Purchase Agreement that contains the forum-selection clause. Defendant Kal Raman is a signatory to a Limited Guarantee that also contains a forum-selection clause. Plaintiff Harland Clarke and Defendant Milken are not signatories to any of the agreements containing a forum-selection clause. However, Defendant Milken (and Defendant Raman) have filed the instant motion requesting transfer to Delaware, and that is sufficient consent to venue in the District of Delaware. As discussed above, Harland Clarke is bound by the forum-selection clause.
A party who agrees to a forum-selection clause has consented to venue there for purposes of § 1404(a). Atlantic Marine, 134 S.Ct. at 579 (rephrasing the language "to which all parties have consented" in § 1404(a) as "to which the parties have agreed by contract or stipulation"). Plaintiffs argue that being "bound by" a forum-selection clause in a contract is not the same thing as signing the agreement and thereby consenting to the venue designated therein, and thus that the fact that it is bound by the forum-selection clause is insufficient for the Court to find that it has consented to venue in Delaware for purposes of § 1404(a). However, the Court agrees with Defendants that a party that is bound by a mandatory forum-selection clause like the one in this case has consented to that forum for purposes of § 1404(a).
Defendants contend that if Scantron is bound by the forum-selection clause (which in this case is labeled as "consent to jurisdiction" and in which the parties expressly consent to venue in Delaware), then it has effectively consented to venue in Delaware. Defendants have located three cases and cited them in their supplemental reply. Docket no. 58 at 12 (citing Hadley v. Shaffer, No. 99-144-JJF, 2003 WL 21960406, at *7 (D.Del. Aug. 12, 2003) ("Because the [nonsignatory] Hadleys are bound by the forum selection clause, the Court concludes that they have expressly consented to the jurisdiction of this
Plaintiffs argue that a non-signatory such as Milken may not enforce a forum-selection clause against a non-signatory such as Harland Clarke. Scantron agreed that it and Harland Clarke would not sue Non-Recourse parties such as Milken except "under and in accordance with" the various transaction agreements, all of which contained mandatory forum-selection clauses. Defendants argue that Milken is a third-party beneficiary of the Purchase Agreement and Limited Guarantee and entitled to enforce the forum-selection clause. See, e.g., Dos Santos v. Bell Helicopter Textron, Inc. Dist., 651 F.Supp.2d 550 (N.D.Tex.2009); Clinton v. Janger, 583 F.Supp. 284, 290 (N.D.Ill.1984).
Defendants assert that Milken is a third-party beneficiary of the transaction agreements because he is a Seller Indemnified Party under § 8.03(a) and an express third-party beneficiary under § 11.12 of the Purchase Agreement. The Court agrees that Milken is a party entitled to indemnification and therefore a third-party beneficiary of the Purchase Agreement and entitled to enforce the forum-selection clause. Because Harland Clarke is bound by the forum-selection clause, Milken may enforce the clause against Harland Clarke.
Defendants also argue that Milken is a "Non-Recourse Party" as that term is defined in the Limited Guarantee between Scantron and LP, and is therefore an express third-party beneficiary of that agreement as well. Plaintiffs argue that Milken cannot enforce the forum-selection clause in the Limited Guarantee because it provides that Non-Recourse Parties are third-party beneficiaries only with "full rights of enforcement with respect to the provisions of this Guarantee which reference Non-Recourse Parties" and the forum-selection clause does not reference Non-Recourse Parties. However, Section 6 allows Non-Recourse Parties to enforce the no-recourse provisions, under which Scantron agreed on its behalf and on behalf of Harland Clarke not to institute any action except for "under and in accordance with the Guarantee" or "under and in accordance with the Purchase Agreement," and "such recourse shall be subject to the limitations described herein and therein."
When the parties have agreed to (or are bound by) a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause. Plaintiffs argue that, if this case can be transferred, all of the private and public interest factors should be considered because Harland Clarke was not a signatory to any agreement containing a forum-selection clause and therefore did not waive its right to have its private interests considered. Plaintiffs assert that the Supreme Court limited its discussion in Atlantic Marine to parties to a forum-selection clause and based its reasoning on the parties' expectations and bargained-for exchange. However, the Court holds that, when a party is "bound by" a contract, it is subject to the terms of the contract that resulted from the bargained-for exchange, regardless of whether it itself bargained for those terms. In any event, Harland Clarke actively negotiated the contract, and thus participated in the bargained-for exchange. Because both of the Plaintiffs in this case bargained for and are bound by the forum-selection clause, the Court will not consider Plaintiffs' private-interest factors. The Court thus turns to consideration of the public-interest factors.
Defendants argue that this factor is neutral, since both this Court and the District of Delaware "are very busy." Defendants note that the median time from filing to disposition in 2012 was 6.8 months in this district and 8.6 months in the District of Delaware. In 2013, the median time from filing to disposition was 7.1 months in this district and 7.6 months in the District of Delaware. This is an insignificant difference.
Plaintiffs contend that this factor favors retaining venue here because this district has a faster median time to trial (17.8 months in 2012 and 2013) than Delaware (29.8 months in 2012 and 27.6 months in 2013). In reply, Defendants assert that time to trial is "the most speculative" factor. Docket no. 34 at 18 (citing On Semiconductor Corp. v. Hynix Semiconductor, Inc., No. 6:09-CV-390, 2010 WL 3855520, at *7 (E.D.Tex. Sept. 30, 2010) ("This factor appears to be the most speculative, and this factor alone should not outweigh other factors.")). Defendants assert that while time to trial is longer in Delaware, the median time to disposition is only slightly longer. Defendants cite Shawn Massey Farm Equip., Inc. v. CLAAS of Am., Inc., No. 4:12-CV-300, 2012 WL 7004153, at *6 (E.D.Tex. Dec. 19, 2012) (magistrate judge report and recommendation), in which the court held that a difference of only a few months in time to trial between transferor and transferee courts rendered this factor neutral.
In On Semiconductor, the court reasoned that, although cases reached trial sooner in the transferee district, the difference of five months was neutral given the speculative nature of this factor. The
The difference in time to disposition is not significant, but the difference in time to trial is. The Court finds that this factor weighs slightly against transfer. See Uniloc USA, Inc. v. Distinctive Dev. Ltd., 964 F.Supp.2d 638, 650-51, 2013 WL 4081076, at *7 (E.D.Tex.2013) (difference of six months in time to trial weighed against transfer); Glaxo Grp. Ltd. v. Genentech, Inc., No. C 10-00675 JSA, 2010 WL 1445666, at *5 (N.D.Cal. Apr. 12, 2010) (fact that transferee court less congested weighed in favor of transfer). However, the difference in court congestion presents no extraordinary circumstance.
Defendants argue that this case is not factually connected to this District. Although Harland Clarke is headquartered here, Defendants assert that the Transaction Documents contemplate that Harland Clarke would not bring any claims, and Scantron, not Harland Clarke, actually purchased GlobalScholar. Further, although Scantron claims it is headquartered here, Defendants dispute this claim, based on Scantron's own website and its prior sworn statements. Further, both Plaintiffs are incorporated in Delaware and are therefore citizens of Delaware. Defendants are located in California and Washington, and GlobalScholar is headquartered in Washington. Defendants assert that the relevant events took place either by phone or email, or in meetings in California, New York, Washington, and India. Defendants therefore argue that this factor is neutral.
Plaintiffs argue that this case has no connection to Delaware other than the forum-selection clause and choice-of-law clause in the Transaction Agreements, but this is not a breach-of-contract case between the signatories. Rather, Plaintiffs contend, this is an action based on Defendants' fraudulent conduct that injured them in San Antonio, where Harland Clarke maintains its principal place of business and Scantron's high-level officers were located. Plaintiffs provide evidence that Harland Clarke maintains its principal place of business and corporate headquarters in San Antonio, and that Scantron's CEO, Secretary and General Counsel, and CFO lived and worked in the Western District of Texas at the time in question and today. Plaintiffs assert that Plaintiffs' representative, Ben Cosby, was in Texas when he participated in a phone call to explore Plaintiffs' interest in acquiring GlobalScholar. Plaintiffs argue that "[m]any of Defendants' misrepresentations were made to Plaintiffs' agents who lived and worked in" the Western District of Texas. Plaintiffs contend that because this case has no connection to Delaware, the injury occurred in this district, and Texas has an interest in preventing entities doing business here from being the victims of fraudulent schemes, this factor weighs heavily in favor of retaining venue.
In reply, Defendants assert that Plaintiffs "took liberties" in asserting that Scantron's corporate headquarters and principal place of business are in San Antonio, despite proof, including their own prior sworn statements, that Scantron is based on Minnesota. Defendants note that Plaintiffs focus on Harland Clarke, but fail to demonstrate what Harland Clarke's injury
The Court finds that this factor is neutral. Most of the relevant events underlying this lawsuit took place outside of San Antonio. Although Plaintiffs identify one misrepresentation that was allegedly received in San Antonio, and although Harland Clarke is headquartered here, both Plaintiffs are citizens of Delaware, the forum-selection clause designates Delaware as the exclusive forum, and parties designated Delaware law. The Court therefore finds that the Western District of Texas and the District of Delaware have similar interests in deciding this case.
Defendants assert that the Delaware choice-of-law provision ensures that Delaware law will apply, and that this factor therefore weighs heavily in favor of transfer to Delaware. Plaintiffs disagree, stating that "it is unclear whether the choice of law provision applies to any of Plaintiffs' claims and it certainly does not apply to all of them." Plaintiffs argue that their claims "do not relate to the breach, interpretation, construction, validity, termination, or enforcement of the Purchase Agreement and thus the choice of law provision most likely does not apply." Docket no. 31 at 28. Plaintiffs assert that, at the most, uncertainty about application of the choice-of-law provision renders this factor neutral. Plaintiffs also argue that this Court is more familiar with their Texas statutory claims (Texas Securities Act and Texas Business & Commerce Code).
However, as pointed out by Defendants, the choice-of-law provision is broad, and covers "[a]ll matters relating to this Agreement or the breach, interpretation, construction, validity, termination and enforcement of this Agreement." It also requires the application of Delaware law regardless of whether choice-of-law rules would require application of a different state's law. Defendants note that court have found that narrower choice-of-law provisions have been found to govern the types of claims being asserted in this case. See, e.g., Abry Partners V, L.P. v. F & W Acquisition, LLC, 891 A.2d 1032, 1046-49 (Del.Ch.2006) (choice-of-law clause stating that agreement "shall be governed by, and construed in accordance with" Delaware law covered tort claims seeking rescission on contract based on alleged misrepresentations); Weil v. Morgan Stanley DW Inc., 877 A.2d 1024, 1032-33 (Del.Ch.2005); McReynolds v. Trilantic Capital Partners IV L.P., No. 5025-VCL, 2010 WL 3721865, at *7 n. 2 (Del.Ch. Sept. 23, 2010); see also Van Lake v. Sorin CRM USA, Inc., No. 12C-04-036 JRJ CCLD, 2013 WL 1087583, at *6 (Del.Super. Feb. 15, 2013) (choice-of-law provision governing all disputes or claims arising out of or relating to agreement includes fraud, fraudulent inducement, and negligent misrepresentation claims).
Defendants argue that the determination of Plaintiffs' claims will require interpretation of the various contractual provisions that Defendants will assert as
Plaintiffs argue that, if Defendants were to prevail on their argument that Delaware law applies to all claims, that would deprive them of their claims under the Texas Securities Act, which would be contrary to public policy and would constitute the sort of "exceptional circumstances" described by the Supreme Court in Atlantic Marine to warrant denial of Defendants' transfer motion. However, Plaintiffs recognize that there is Texas law holding that the anti-waiver provisions are not a bar to a forum-selection clause. Young v. Valt.X Holdings, Inc., 336 S.W.3d 258 (Tex.App.-Austin 2010, pet. dism'd).
Moreover, this issue is not related to the forum in which the case is tried; it is an issue of which state's law will govern and, in turn, whether the Texas statutory claims will be permitted to proceed. Plaintiffs argue that "Defendants ... take a more extreme position: that a forum-selection clause in agreements not signed by the claimant (here, Harland Clarke) can be used to deny the claimant its right to assert a claim under the Texas Securities Act that cannot be waived." However, it is the choice-of-law clause, not the forum-selection clause, that purportedly precludes Plaintiffs from bringing Texas statutory claims. Thus, Plaintiffs' argument goes to the choice-of-law clause, not the forum-selection clause. The scope of the choice-of-law clause and whether it precludes Plaintiffs from proceeding with Texas statutory claims will be decided by either this Court or the Delaware court, and either court could decide that the choice-of-law clause governs and requires application of Delaware law and excludes Plaintiffs' Texas Securities Act claim. Therefore, this argument is not relevant to which forum should decide the case, and does not weigh against a transfer to Delaware or present "exceptional circumstances" precluding transfer. Even if Texas law applies to some or all claims, the Supreme Court noted in Atlantic Marine that "federal judges routinely apply the law of a State other than the State in which they sit" and thus this factor presents no extraordinary circumstance.
Because Delaware law will likely predominate in this case, the Court finds that this factor favors transfer. Further, this factor presents no extraordinary circumstance preventing transfer.
All parties agree that this factor is neutral.
The Court finds that the public factors do not require the Court to deny the motion to transfer. Court congestion alone does not defeat the other factors. Further, the Supreme Court in Atlantic Marine expressly noted that the public interest factors "will rarely defeat a transfer motion" and the practical result is that "forum-selection clauses should control except in unusual cases." Atlantic Marine, 134 S.Ct. at 582. Plaintiffs have not shown that this case presents the unusual or extraordinary
The Court agrees with Defendants that the forum-selection clauses and the parties' clear intent mandate that any actions arising out of or relating to the Global-Scholar sale be brought in Delaware. The Court therefore GRANTS Defendants' motion to transfer venue to the District of Delaware (docket no. 18). The Court DENIES the motion for a hearing (docket no. 36). The Court DISMISSES AS MOOT Defendants' motion to dismiss for improper venue (docket no. 38). The Clerk is directed to TRANSFER this case to the District of Delaware.
It is so ORDERED.
In addition, although Plaintiffs assert fraud claims, they have not alleged that the forum-selection clause itself was a product of fraud. Therefore, under Delaware, Texas, and federal law, Plaintiffs' fraud claims do not invalidate application of the forum-selection clauses in the agreements. Carlyle Inv. Mgmt. L.L.C. v. Nat'l Industries Group, No. 5527-CS, 2012 WL 4847089 (Del.Ch. Oct. 11, 2012) ("Under Delaware and federal law, a party cannot escape a valid forum selection clause, or its analogue, an arbitration clause, by arguing that the underlying contract was fraudulently induced or invalid for some reason unrelated to the forum selection or arbitration clause itself. Instead, the party must show that the forum selection clause itself is invalid.") (citing Scherk v. Alberto-Culver, 417 U.S. 506, 519 n. 14, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974) ("[A]n arbitration or forum-selection clause in a contract is not enforceable if the inclusion of that clause in the contract was the product of fraud or coercion.")); MaxEn Capital LLC v. Sutherland, No. H-08-3590, 2009 WL 936895, at *7 (S.D.Tex. April 3, 2009) ("the proper inquiry is whether the forum-selection clause is the result of fraud in the inducement of the forum-selection clause itself") (citing Afram Carriers, Inc. v. Moeykens, 145 F.3d 298, 302 n. 3 (5th Cir.1998)); In re Harris Corp., 2013 WL 2631700, at *5 (under Texas law, a party seeking to avoid enforcement of a forum-selection clause based on fraud must show that the forum-selection clause itself was procured through fraud or overreaching).
