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Original Equip. Co., Inc. v. East Coast Res. Group, LLC

United States District Court, D. Nebraska

May 17, 2013

ORIGINAL EQUIPMENT CO., INC., d/b/a AULICK INDUSTRIES, Plaintiff,
v.
EAST COAST RESOURCES GROUP, LLC, and EAST COAST RESOURCE GROUP, LLC, Defendants

For Original Equipment Co., Inc., doing business as Aulick Industries, Plaintiff: Andrew W. Snyder, CHALOUPKA, HOLYOKE LAW FIRM, Scottsbluff, NE.

For East Coast Resources Group, LLC, East Coast Resource Group, LLC, Defendants: Austin L. McKillip, CLINE, WILLIAMS LAW FIRM - LINCOLN, Lincoln, NE; Daniel W. Linna, PRO HAC VICE, HONIGMAN, MILLER LAW FIRM, Detroit, MI.

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MEMORANDUM AND ORDER

Richard G. Kopf, Senior United States District Judge.

This matter is before the court on the findings and recommendation entered by Magistrate Judge Cheryl R. Zwart on April 8, 2013 (filing 18). Judge Zwart recommends (1) that the plaintiff's motion to remand (filing 11) be granted, and the case remanded to the District Court of Scotts Bluff County, Nebraska, and (2) that the plaintiff's motion to change the location of any federal trial herein to North Platte, Nebraska (filing 10), be denied as moot. The defendant East Coast Resource Group (" ECR" ) [1] has filed a statement of objections to the recommendation that the case be remanded (filing 23).

At issue is a forum selection clause that was drafted by the plaintiff, Original Equipment Co., Inc., doing business as Aulick Industries (" Aulick" ), and included in 17 trailer rental contracts that it entered into with ECR. The clause requires that every lawsuit alleging breach of contract " shall be exclusively instituted and maintained in the District Court of Scotts Bluff County, State of Nebraska," and further specifies that " [e]ach party expressly waives the right to change venue from the District Court of Scotts Bluff County, State of Nebraska" (filing 13, Exhibits A-Q at ¶ 15). ECR objects that Judge Zwart " erroneously interpreted the forum selection clause contained in Aulick's boilerplate terms and conditions and erroneously concluded that ECR 'clearly and unequivocally' waived its right to remove" (filing 23 at CM/ECF p. 1). [2]

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I find and conclude after de novo review that Judge Zwart has correctly found the facts and applied the law regarding the meaning and effect of the forum selection clause. [3] Subject to my comments below (regarding the legal basis for the remand), her findings and recommendation will be adopted.

In opposing the motion to remand, ECR argued before Judge Zwart that the forum selection clause is unenforceable under Nebraska's Model Uniform Choice of Forum Act," Neb. Rev. Stat. § § 25-413 to 25-417 (filing 17 at CM/ECF pp. 7-8). [4] In particular, ECR disputed that Nebraska is " a reasonably convenient place for the trial of the action," which is a necessary condition for enforcing a forum selection clause under § 25-414. That statute provides, in part:

If the parties have agreed in writing that an action on a controversy may be brought in this state and the agreement provides the only basis for the exercise of jurisdiction, a court of this state will entertain the action if (a) the court has power under the law of this state to entertain the action; (b) this state is a reasonably convenient place for the trial of the action ; (c) the agreement as to the place of the action was not obtained by misrepresentation, duress, the abuse of economic power, or other unconscionable means; and (d) the defendant, if within the state, was served as required by law of this state in the case of persons within the state or, if without the state, was served either personally or by certified mail directed to his last-known address.

Neb. Rev. Stat. § 25-414(1) (emphasis supplied). [5]

Judge Zwart rejected ECR's argument by stating that Nebraska law " cannot be used to determine the threshold issue of federal subject matter jurisdiction pending before this forum" (filing 18 at CM/ECF p. 4 n. 1). This was error in my opinion.

Although ECR has not specifically objected to Judge Zwart's rejection of its argument that the forum selection clause is unenforceable under Nebraska's Model Uniform Choice of Forum Act, [6] I will address

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the issue. See Thomas v. Arn, 474 U.S. 140, 154, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985) (district judge may review de novo any issue in magistrate judge's report and recommendation at any time).

" A remand order based upon a contractual forum-selection clause is not a remand based upon a procedural defect or lack of subject-matter jurisdiction." Public School Retirement System of Missouri v. State Street Bank & Trust Co., 640 F.3d 821, 825 (8th Cir. 2011) (holding that remand order based on forum selection clause is reviewable on appeal). [7] Thus, to the extent that Judge Zwart's recommendation is based upon a perceived lack of federal subject matter jurisdiction, [8] I do not adopt her legal analysis.

Because this is a diversity case, the court must decide whether to treat the issue of the enforceability of the forum selection clause as substantive or procedural. See, e.g., In re Baycol Products Litigation, 616 F.3d 778, 785 (8th Cir. 2010) (" [I]n a suit based on diversity of citizenship jurisdiction the federal courts apply federal law as to matters of procedure but the substantive law of the relevant state." ). As Judge Strom noted in Mid-American Benefits, Inc. v. RMTS, LLC, No. 8:12CV96, 2012 WL 2015906, *2 (D.Neb. June 5, 2012), the Eighth Circuit has declared that " enforcement, or not, of the contractual forum selection clause [is] a federal court procedural matter governed by federal law." Fru-Con Const. Corp. v. Controlled Air, Inc., 574 F.3d 527, 538 (8th Cir. 2009). [9] See also Mongold v. Universal

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Nationwide, L.L.C., No. 8:09CV86, 2009 WL 3297508, *2 (D.Neb. Oct. 13, 2009) (" The Court finds federal law is the applicable law for evaluating a forum-selection clause." ).

The Eighth Circuit recently held in Union Electric, 689 F.3d at 973, that a district court sitting in diversity jurisdiction and applying federal law to determine whether to enforce a forum selection clause through dismissal must apply the standard articulated in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), which states that forum selection clauses are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be unreasonable under the circumstances. [10] Judge Zwart applied the Bremen standard and properly found that " ESR [ sic ] has submitted no evidence supporting a claim of fraud or duress in creating the lease agreements, and based on the evidence submitted, the contracts are arms-length agreements between experienced commercial entities," one of which (Aulick) is a business located in Nebraska (filing 18 at CM/ECF p. 6). I would add that " [a] forum selection clause is still enforceable even when it is the product of a form contract and was not actually negotiated or bargained for." Mid-American Benefits, 2012 WL 2015906 at *2 (citing Carnival Cruise Lines, 499 U.S. at 595; M.B. Restaurants, 183 F.3d at 752).

" The fact that ESR [sic] never entered Nebraska, conducts no business in Nebraska,

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and is located a substantial distance from Nebraska" was determined by Judge Zwart not to be " a sufficiently 'strong showing' to render the forum selection clause unreasonable and unenforceable for the purposes of deciding subject matter jurisdiction" (filing 18 at CM/ECF p. 6). While I agree that these factors do not render the forum selection clause unreasonable and unenforceable under federal law, the legal issue presented by Aulick's motion to remand does not concern the court's subject matter jurisdiction, as I have already explained.

" While Bremen provides the proper analysis for determining the enforceability of a forum selection clause, in this circuit, consideration of the public policy of the forum state must be part of that analysis." Union Electric, 689 F.3d at 974 (citing Farmland Industries, 806 F.2d at 852). Cf. Bremen, 407 U.S. at 15 (" A contractual choice-of-forum clause should be held unenforceable if enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision." ).

ECR has argued that this court is required to apply the provisions of Neb. Rev. Stat. § 25-414(1) to the remand issue because Nebraska's Model Uniform Choice of Forum Act is a public policy declaration. Section 25-414, however, is only concerned with the issue of personal jurisdiction. See Polk County Recreational Ass'n, 734 N.W.2d at 756; Ameritas Investment, 694 N.W.2d at 200-01.

The contracts that ECR entered into with Aulick all provide that they " shall be governed by the laws of the State of Nebraska" (filing 13, Exhibits A-Q at ¶ 15). The statutory limitations on a Nebraska court entertaining an action pursuant to a forum selection clause when personal jurisdiction otherwise would be lacking, as set out in Neb. Rev. Stat. § 25-414(1), are therefore incorporated into these contracts as a matter of law. See Haakinson & Beaty Co. v. Inland Ins. Co., 216 Neb. 426, 344 N.W.2d 454 (Neb. 1984) (forum selection clause in indemnity bond which complied with Nebraska's Model Uniform Choice of Forum Act was not contrary to public policy, and provisions of Neb. Rev. Stat. § 25-415, requiring dismissal or stay of action filed in Nebraska in violation of a forum selection clause unless statutory exception(s) applied, were part of bond even if not spelled out therein).

It is not necessary for this court to decide whether ECR is subject to suit in Nebraska under the forum selection clause or otherwise. [11] For purposes of ruling on Aulick's motion to remand, it is enough to hold that the forum selection clause is valid under both federal and state law, and that its language clearly and unequivocally prohibits ECR from removing the action from the District Court of Scotts Bluff County, Nebraska.

IT IS ORDERED:

1. The magistrate judge's findings and recommendation (filing 18), as modified by the foregoing memorandum, are adopted.
2. The defendant's statement of objections (filing 23) is denied.
3. The plaintiff's motion to remand (filing 11) is granted, and the case is remanded to the District Court of Scotts Bluff County, Nebraska.
4. The plaintiff's motion to change the location of any federal trial herein to

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North Platte, Nebraska (filing 10), is denied as moot.
5. The clerk of the court shall mail a certified copy of this order, and of the magistrate judge's findings and recommendation, to the District Court of Scotts Bluff County, Nebraska, and may take any other action necessary to effectuate the remand.
6. Final judgment will be entered by separate document.

* This opinion may contain hyperlinks to other documents or Web sites. The U.S. District Court for the District of Nebraska does not endorse, recommend, approve, or guarantee any third parties or the services or products they provide on their Web sites. Likewise, the court has no agreements with any of these third parties or their Web sites. The court accepts no responsibility for the availability or functionality of any hyperlink. Thus, the fact that a hyperlink ceases to work or directs the user to some other site does not affect the opinion of the court.

JUDGMENT

Pursuant to the court's Memorandum and Order filed this date,

FINAL JUDGMENT is hereby entered, providing that this action is remanded to the District Court of Scotts Bluff County, Nebraska.


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