OPINION AND ORDER DENYING DEFENDANT'S MOTION TO DISMISS OR ALTERNATIVELY TO TRANSFER [#8]
GERSHWIN A. DRAIN, District Judge.
On July 24, 2014, Plaintiff Arbor Beverage Company ("Arbor Beverage"), filed the instant action. Plaintiff alleges two counts against Defendant, Phillips Farms, which is doing business as Michael David Winery ("MDW"): (1) breach of its 2004 exclusive distribution agreement ("2004 Agreement"), and (2) declaratory judgment respecting the non-arbitrability of the claim.
Presently before the Court is Defendant's Motion to Dismiss or Alternatively to Transfer [#8], filed on November 14, 2014. On December 29, 2014, Plaintiff filed a Response [#15]. On January 15, 2015, Defendant filed a Reply [#16] to Plaintiff's Response.
On January 16, 2015, Arbor Beverage filed a motion for leave to file a surreply [#17]. Upon review of this fully-briefed motion, the Court found that Arbor Beverage's grounds were proper and granted its motion to file the sur-reply. As a result, Arbor Beverage's surreply is contemplated as part of this opinion and order.
For the reasons stated below, the Court denies Defendant's motion.
II. FACTUAL BACKGROUND
MDW is a family-owned wine supplier with its principal place of business in Lodi, California. Arbor Beverage is a wine wholesaler with its principal place of business in Scio Township, Washtenaw County, Michigan.
On June 1, 2004, Michael David and Arbor Beverage entered into the 2004 Agreement. Under the 2004 Agreement, MDW granted Arbor Beverage exclusive distribution rights for the sale of its wine. The 2004 Agreement granted such distribution rights covering the following seven counties: Washtenaw, Livingston, Jackson, Lenawee, Macomb, Oakland, and Wayne. The Parties refer to this area as Arbor's Exclusive Territory. The 2004 Agreement did not include either an arbitration clause or a forum selection clause.
Between 2004 and 2005, Arbor Beverage solicited at least 10 orders with MDW. MDW's invoices did not contain any terms or conditions. Between 2006 and 2007, Arbor Beverage placed seven orders with MDW. The accompanying invoices contained some terms and conditions. These terms and conditions included neither an arbitration clause nor a forum selection clause.
Since December 2007, Arbor Beverage has submitted 48 purchase orders. With accompanying invoices, and since December 2007, MDW placed another set of terms and conditions on the front of its Arbor Beverages invoices. The Terms and Conditions state the following:
E.g., Def.'s Mot. Dismiss, Ex. A-1 (ECF No. 8-2, Pg ID 162) (emphasis in original).
Id. Def.'s Mot. Dismiss, Ex. A-1 (ECF No. 8-2, Pg ID 177). The back of each Arbor invoice stated: "Distributor or Buyer's submission of a purchase order for any MDW VINEYARDS product shall constitute agreement to these Terms and Conditions . . ."
Several years after the formation of the 2004 Agreement, it came to Arbor Beverage's attention that another wine wholesaler was distributing MDW wines in its exclusive territory. CKL Corporation, doing business as Imperial Beverage ("Imperial"), is also a Michigan wine wholesaler. In June 2009, through a written contract ("the 2009 Imperial Agreement"), MDW granted Imperial the right to offer and sell its brands of wine in portions of Arbor's Exclusive Territory, on a dual basis. Arbor Beverage was not notified as to the existence of the 2009 Imperial Agreement until March 2014. Until March 2014, Arbor Beverage claims that Imperial led it to believe that Imperial had not been granted such rights.
On July 24, 2014, Arbor Beverage filed the immediate cause of action against MDW for breach of contract, seeking compensation for the loss of alleged exclusive distribution rights. Arbor Beverage contends that the 2004 Agreement governs the cause of action and challenges the validity of the 2007 Terms and Conditions. The Parties now request that the Court examine the validity of the arbitration and forum selection clauses.
III. LAW AND ANALYSIS
Standard of Review
1. Defendant's Motion to Dismiss
Rule 12 of Federal Rules of Civil Procedure governs motions for judgment on the pleadings. Defendant contends that the case should be dismissed under either Rule 12(b)(1), 12(b)(3), or 12(b)(6). The Rules permit a party to assert a defense for lack of subject-matter jurisdiction, improper venue, and failure to state a claim on which relief can be granted, respectively. See FED. R. CIV. P. 12(b)(1), 12(b)(3), 12(b)(6).
a. Dismissal for Lack of Subject Matter Jurisdiction Under Rule 12(b)(1)
Federal Rule of Civil Procedure 12(b)(1) authorizes a party to challenge the court's subject matter jurisdiction. The Defendant's Motion to Dismiss is a factual attack on the court's subject matter jurisdiction. In reviewing the motion:
Ashley v. United States, 37 F.Supp.2d 1027, 1029 (W.D. Mich. 1997). "A court lacking jurisdiction cannot render judgment but must dismiss the cause at any stage of the proceedings in which it becomes apparent that jurisdiction is lacking." Sweeton v. Brown, 27 F.3d 1162, 1169 (6th Cir. 1994) (quoting United States v. Siviglia, 686 F.2d 832, 835 (10th Cir. 1981), cert. denied, 461 U.S. 918 (1983)).
b. Dismissal for Improper Venue Under Rule 12(b)(3)
Federal Rule of Civil Procedure 12(b)(3) authorizes dismissal if venue is either "wrong" or "improper". Atlantic Marine Constr. Co., Inc. v. U.S. Dist. Court for the Western Dist. of Texas, 134 S.Ct. 568, 574 (2013). In the Atlantic Marine decision, the Supreme Court stated that under Rule 12(b)(3), "a forum-selection clause does not render venue in a court "wrong" or "improper" under § 1406(a) or Rule 12(b)(3)" Id. (emphasis added).
Id. at 573. Title 28 U.S.C. Section 1391 governs venue generally. Id.
c. Dismissal for Failure to State Claim Under Rule 12(b)(6)
Federal Rule of Civil Procedure 12(b)(6) authorizes the dismissal of a case for failure to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to dismiss, plaintiff's pleading for relief must provide "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Ass'n of Cleveland Fire Fighters v. City of Cleveland, 502 F.3d 545, 548 (6th Cir. 2007) (quoting Bell Atlantic, 550 U.S. at 555). "[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Ashcroft v. Iqbal, 556 U.S. 662, 668 (2009). "Nor does a complaint suffice if it tenders `naked assertion[s]' devoid of `further factual enhancement.'" Id. "[A] complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Id. The plausibility standard requires "more than a sheer possibility that a defendant has acted unlawfully." Id. "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not `show[n]' — `that the pleader is entitled to relief.'" Id.
2. Defendant's Motion to Transfer to the U.S. District Court for the Northern District of California
In the alternative, transfer of venue is governed by Title 28, Section 1404 of the United States Code. Section 1404 states:
28 U.S.C. § 1404(a).
When a defendant files a motion to transfer under forum non conveniens, and based on a forum selection clause, "a district court should transfer the case unless extraordinary circumstances unrelated to the convenience of the parties clearly disfavor a transfer." Atlantic Marine, 134 S.Ct. at 575. In addition, when a motion to transfer is grounded in either a forum selection or choice of forum clause, courts use an inquiry that is different from its standard inquiry. Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 31, 33 (1988); see also Atlantic Marine, 134 S. Ct. at 581. Under the Atlantic Marine analysis, the plaintiff's choice of forum is not given deference. See, e.g., Gen. Motors Corp. v. Ignacio Lopez de Arriortua, 948 F.Supp. 656, 668 (E.D. Mich. 1996). Instead, the party defying the forum selection clause bears the burden of proving that the bargained-for forum is warranted. 134 S.Ct. at 581-82.
The Court first examines whether transfer of the matter is required. If transfer is required, then it would be proper for the courts of the Northern District of California to answer the question of whether the case then requires dismissal on the grounds that Defendant proposes. If the Court determines that transfer is not required, then it follows that dismissal is also not warranted.
1. A review of Defendant's motion to transfer, as an initial matter, requires an examination of the validity of the forum selection provision.
In its motion, Defendant argues that the case should be transferred on forum non conveniens grounds because the 2007 Terms and Conditions included on Arbor Beverage's invoices contained arbitration and choice-of-law clauses. Plaintiff argues that the 2007 Terms and Conditions are not valid, and therefore, the arbitration and choice of law provisions within the sales invoices are also not valid. Plaintiff instead contends that the 2004 Agreement governs the substance of this case.
Defendant cites Security Watch for the proposition that the forum selection clauses contained in the 2007 Terms and Conditions are valid. Security Watch, Inc. v. Sentinel Sys., Inc., 176 F.3d 369 (6th Cir. 1999) ("[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"). Defendant also cites Wong as the legal inquiry that applies to the question of whether the forum selection clauses are valid. Wong v. PartyGaming Ltd., 589 F.3d 821, 828 (6th Cir. 2009) (citing Shell v. R.W. Sturge, Ltd., 55 F.2d 1227, 1229 (6th Cir. 1995)). Wong provides a three-part test for determining whether a forum selection clause is enforceable.
In citing Security Watch and the Wong test, however, Defendant fails to correctly frame the legal issue, which was noted in the Complaint. The legal question at play in this motion is a preliminary one: whether the contract that contains the forum and choice of law provisions were "bargained-for" at all; the question is not whether the forum selection provision in and of itself is enforceable. The Wong inquiry applies to the latter question only because it presumes that the contract, which contains such clauses, has been properly negotiated or bargained for and, as a result, "represents the parties' agreement as to the most proper forum.
The Court cannot reach the question of enforceability until it reviews whether the 2007 Terms and Conditions are valid.
2. The forum selection provisions in the 2007 Terms and Conditions are invalid.
This matter represents a "battle of the forms" challenge. Plaintiff contends that the parties' 2004 Agreement is the governing contract whereas Defendant contends that its 2007 Terms and Conditions govern the cause of action.
Section 436.1305(3)(m) of the Michigan Liquor Control Code of 1998 is central to resolving this controversy. The statutory provision contemplates the structure for the business relationship between a wine wholesaler (Arbor Beverage) and wine supplier (MDW). The statutory provision states:
MICH. COMP. LAW § 436.1305(3)(m) (emphasis added).
The statute needs little interpretation. Arbor Beverage is a wine wholesaler, and MDW is a wine supplier; the parties decided to engage in a business relationship within the state of Michigan. This type of relationship is expressly contemplated by a Michigan-state statute, which contains prohibitive choice of law and forum rules. Although the terms of the statute state that, "a supplier shall not . . . require by a provision of any agreement or other instrument in connection with the agreement," that any dispute be determined by another state's laws, Defendant concedes that furthering the business relationship required that Plaintiff accepted its 2007 Terms and Conditions.
The 2007 Terms and Conditions contained a forum selection clause, favoring the state of California. While the statutory provision does not bar arbitration,
MDW contends, however, that by continuing to place purchase orders for its brand wines and accepting delivery, Arbor Beverage waived its rights under this provision of the Michigan law. MDW emphasizes that Arbor Beverage placed 48 orders subsequent to the 2007 Terms and Conditions. In addition, MDW further contends that the 2007 Terms and Conditions were properly negotiated and bargained for, effectively replacing the 2004 Agreement.
The history of the parties' transactions, beginning in December 2007, is irrelevant and, thus, requires no evaluation. The statute highlights that the supplier bears the initial responsibility of not requiring such forum selection provisions. Thus it follows that a wholesaler does not possess the opportunity to waive its rights under the statute.
Furthermore, MDW concedes as much. In its 2009 Imperial Agreement, MDW acknowledges the governance of § 436.1305, despite the reservations in contractual language, stating: "If, and only to the extent that, the provisions of Michigan law [Section 436.1305], . . . govern the sale of products by Supplier to Distributor, then the terms of this Agreement are deemed modified to conform to those provisions." Likewise, Defendant at no point argues the applicability of the Michigan law. As a result, the Court denies Defendant's Motion to Transfer and does not reach the question concerning the enforceability of the forum selection clauses.
Defendant premised both its dismissal motion as well as its Section 1406(a) transfer motion entirely on the validity of the forum selection clause.
For the reasons stated above, Defendant's Motion to Dismiss or Alternatively to Transfer [#8] is
IT IS SO ORDERED.