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Basalite Concrete Products, LLC, A Nevada v. Keystone Retaining Wall Systems

March 16, 2011

BASALITE CONCRETE PRODUCTS, LLC, A NEVADA LIMITED LIABILITY COMPANY,
PLAINTIFF,
v.
KEYSTONE RETAINING WALL SYSTEMS, INC, A MINNESOTA CORPORATION, DEFENDANT.



MOTION TO DISMISS OR TO MEMORANDUM AND ORDER RE:TRANSFER

Plaintiff Basalite Concrete Products, LLC, filed this action against defendant Keystone Retaining Wall Systems, Inc., arising from a contract granting plaintiff the right to manufacture and sell defendant's retaining wall system blocks. The matter is now before the court on defendant's alternative motion;s to dismiss or to transfer the action to the United States District Court for the District of Minnesota, where defendant first filed suit against plaintiff.

This court initially heard oral arguments on the motion on December 6, 2010. Counsel for plaintiff argued that enforcement of the forum selection clause in the parties' latest written contract would offend the strong public policy of the State of California. Because plaintiff's argument depended on the disputed fact of whether the parties entered into a "franchise" agreement under California law, the court held an evidentiary hearing and heard further argument on March 8, 2011.

I. Rule 12(b)(3) and § 1406(a)

Rule 12(b)(3) and § 1406(a) authorize the court to dismiss an action for improper venue. Fed. R. Civ. P. 12(b)(3); 28 U.S.C. § 1406(a). Section 1406(a) also permits the court to transfer the action "in the interest of justice." 28 U.S.C. § 1406(a). Federal law governs the interpretation and enforcement of a forum selection clause. Doe 1 v. AOL LLC, 552 F.3d 1077, 1081-1083 (9th Cir. 2009); Manetti-Farrow, Inc. v. Gucci Am., Inc., 858 F.2d 509, 513 (9th Cir. 1988). A forum selection clause is prima facie valid and should be enforced unless the party challenging enforcement can show it is "unreasonable under the circumstances." Argueta v. Banco Mexicano, S.A., 87 F.3d 320, 325 (9th Cir. 1996) (quoting Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972)) (internal quotation marks omitted).

A forum selection clause is unreasonable if (1) its incorporation was the result of fraud, undue influence, or overweening bargaining power; (2) the designated forum is so "gravely difficult and inconvenient" that the complaining party will "for all practical purposes be deprived of its day in court"; or (3) enforcement of the clause would contravene a strong public policy of the forum in which the suit is brought. Id. at 325 (quoting Bremen, 407 U.S. at 18) (internal quotation marks omitted). A forum selection clause in a California franchise agreement is unenforceable under federal law because of California's strong public policy. Jones v. GNC Franchising, Inc., 211 F.3d 495, 498 (9th Cir. 2000); see also Cal. Bus. & Prof. Code § 20040.5.

The first issue raised by defendant's motion is whether venue in the Eastern District of California is improper under Rule 12(b)(3) and § 1406(a) because of a forum selection clause designating Minnesota in the parties' written contract, which expired by its terms in 2005. The question addressed at the evidentiary hearing on this issue was whether the parties entered into a California franchise agreement, see Cal. Bus. & Prof. Code § 20001 (defining franchise agreement under California Franchise Relations Act), thus precluding enforcement of the forum selection clause. The parties presented live testimony, declarations, and exhibits.

The court finds the evidence inconclusive at this stage. This court is particularly reluctant to reach a conclusion from the limited record before it on this question because it is a question that must be resolved ultimately on the merits either here or in the District of Minnesota.*fn1

Accordingly, the court will not dismiss or transfer the action for improper venue.

II. First-to-File Rule

A court has the discretion to dismiss, stay, or transfer an action pursuant to the first-to-file rule. Alltrade, Inc. v. Uniweld Prods., Inc., 946 F.2d 622, 623 (9th Cir. 1991); Pacesetter Sys., Inc. v. Medtronic, Inc., 678 F.2d 93, 94-95 (9th Cir. 1982). The first-to-file rule was developed to "serve[] the purpose of promoting efficiency well and should not be disregarded lightly." Church of Scientology v. U.S. Dep't of the Army, 611 F.2d 738, 750 (9th Cir. 1979); see also id. ("The doctrine is designed to avoid placing an unnecessary burden on the federal judiciary, and to avoid the embarrassment of conflicting judgments."). The rule is to be applied with a "view to the dictates of sound judicial administration." Pacesetter Systems, Inc., 678 F.2d at 95. In applying the rule, courts consider three threshold factors: (1) the chronology of the two actions, (2) the similarity of the parties, and (3) the similarity of the issues. Alltrade, Inc., 946 F.2d at 625-626.

Even if the factors weigh in favor of applying the rule, the court has discretion not to apply the rule in the interest of equity. See, e.g., Adoma v. Univ. of Phoenix, 711 F. Supp. 2d 1142, 1149-50 (E.D. Cal. May 3, 2010) (Karlton, J.).

The rule is not a "rigid or inflexible rule to be mechanically applied." Pacesetter Sys., Inc., 678 F.2d at 95. "The circumstances under which an exception to the first-to-file rule typically will be made include bad faith, anticipatory suit, and forum shopping." Alltrade, Inc., 946 F.2d at 628 (citations omitted). A court may also decline to apply the rule when the balance of convenience weighs in favor of the later-filed action. See id.

"With respect to both the parties and the issues, courts routinely recognize that they need not be identical in the two actions. Substantial similarity is sufficient." Wright v. RBC Capital Markets Corp., No. Civ. S-09-3601 FCD GGH, 2010 WL 2599010, at *5 (E.D. Cal. June 24, 2010); see also Girafa.com, Inc. v. Alexa Internet, Inc., No. C-08-02745, 2008 WL 4500858, at *7 (N.D. Cal. Oct. 6, 2008); Intersearch Worldwide, Ltd. v. Intersearch Grp., Inc., 544 F. Supp. 2d 949, 959-60 (N.D. Cal. Mar. 19, 2008). Substantial similarity of the issues exist when "the two cases rest on identical factual allegations and assert identical or analogous claims." Jumapao v. Wash. Mut. Bank, F.A., No. 06-CV-2285, 2007 WL 4258636, at *2 (S.D. Cal. Nov. 30, 2007). As one court articulated the test:

(1) are the two pending actions so duplicative or involve substantially similar issues that one court should decide the issues; and (2) which of the two courts should resolve the case? The issues need not be identical to allow one court to decide the ...


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