IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
July 5, 2012
CAI INTERNATIONAL, INC., PLAINTIFF,
SOUTH ATLANTIC CONTAINER LINES, LTD.; MARUBA S.C.A. EMPRESA DE NAVEGACIO MARITIMA; AND EMPRESA DE NAVEGACION MARUBA S.A., DEFENDANTS.
The opinion of the court was delivered by: Claudia Wilken United States District Judge
ORDER GRANTING MOTION TO SET ASIDE DEFAULT (Docket No. 29) AND DENYING MOTIONS TO DISMISS (Docket Nos. 27 and 30)
United States District Court For the Northern District of California
Defendant South Atlantic Container Lines, Ltd. (SACL) moves to set aside the default entered against it. Plaintiff CAI 13 International, Inc. has filed a statement of non-opposition to 14 SACL's motion. SACL and Defendant Empresa de Navegacion Maruba 15 S.A. (Maruba SA) also move to dismiss CAI's complaint for improper 16 venue pursuant to Federal of Civil Procedure 12(b)(3).*fn1 CAI 17 opposes their motions. Having considered the papers filed by the 18 parties and their arguments at the hearing, the Court GRANTS 19 SACL's unopposed motion to set aside the default and DENIES the 20 motions to dismiss. 21
Except where noted, the facts material to the resolution of
these motions are not in dispute.
CAI and SACL entered into three agreements whereby CAI leased 2 shipping containers to SACL. 3
The first two lease agreements, dated May 1, 2005 and November 1, 2008, amended December 15, 2008, contain identical 5 venue selection clauses. These clauses state in relevant part, 6 With respect to any claim or controversy arising out of or relating to this agreement, the parties consent to the jurisdiction of State and Federal Courts located in San Francisco, California, U.S.A.
Declaration of Nadine Teixeira in Supp. of Pl.'s Opp. to Def. 9 Maruba SA's Mot. to Dismiss (Teixeira Maruba SA Decl.) ¶ 4, Ex. E 10 at 10, General Terms and Conditions ¶ 11(a); id. at ¶ 4, Ex. F at 10, General Terms and Conditions ¶ 11(a). 12
The third lease agreement, dated August 8, 2009, states, With respect to any claim or controversy arising out of or relating to this agreement, Lessor may require that any dispute or proceeding arising out of or relating to this Agreement, shall, at Lessor's sole option and discretion, be brought only in state or federal courts having jurisdiction over the City and County of San Francisco or before the American Arbitration Association in San Francisco under its Commercial Arbitration Rules. Lessee consents to jurisdiction and venue in those courts. Lessor may opt to commence or allow proceedings in any other jurisdiction.
Teixeira Maruba SA Decl. ¶ 4, Ex. G at 8, General Terms and 20 Conditions ¶ 11(a). 21
On August 10, 2009, CAI entered into an amended and restated 22 guaranty agreement with Maruba SA and Maritima Maruba, in which 23 Maruba SA and Maritima Maruba guaranteed SACL's performance and 24 payment under the lease agreements. Id. ¶ 5, Ex. A at 1. The 25 guaranty agreement contained a forum selection clause stating, 26 CAI may require that any dispute or proceeding arising out of or relating to this Guaranty shall, at CAI's sole option and discretion, be brought only in state or federal courts having jurisdiction over the City and County of San Francisco or before the American Arbitration Association in San Francisco under its Commercial Arbitration Rules. Each of the Guarantors consents to jurisdiction and venue in those courts. CAI may opt to commence or allow proceedings in any other jurisdiction.
Id. at 6 ¶ 12. 5
On September 30, 2010, CAI entered into a Creditors
with multiple parties, including Maruba SA and SACL, but not 7
Maritima Maruba. Id. ¶ 6, Ex. B. The purpose of this agreement 8 was
to restructure debt that various debtors, including Maruba SA 9 and
others, owed to creditors, including CAI and others, to allow 10 the
debtors to resolve assorted debts, including that owed under
the guaranty and lease agreements described above, with the
assistance of a new investor. Id. at 3-4. The Creditors 13
Agreement incorporated the lease agreements between CAI and SACL 14 by
reference in the schedule of "Charter Party Agreements / 15
Leasing Contracts." Id. at 16. The Creditors Agreement provided 16
that, after certain payments of the outstanding debt amounts were 17
made, forty percent of the total overdue debt would be waived. 18
Id. at 7. The Creditors Agreement also provided that the Company*fn2 would pay, effective June 30, 2010, the original lease amounts in 20 the leasing contracts. Id. at 7 ¶ 2.6. The creditors agreed, 21 "for the duration of the Creditors Agreement, not to take any 22 legal actions against the Company (including but not limited to a 23 demand for payment, filing for insolvency, enforcement action or 24 any other similar proceedings)." Id. at 7 ¶ 4. 25 26
The Creditors Agreement included clauses addressing events of default that allowed CAI and the other creditors to cancel the 3 agreement. If the Company failed to make the payments of 4 outstanding debt required to any creditor within specified amounts 5 of time, the default "shall be deemed to be a repudiatory breach 6 of the Creditors Agreement insofar as it relates to that 7 Creditor." Id. at 8-9 ¶¶ 7.1-7.3. In such an event, the creditor 8 "shall be entitled to cancel the Creditors Agreement insofar as it 9 relates to that Creditor" and to start proceedings to recover the 10 total overdue amount, including any amount that would have been waived had the Creditors Agreement remained in effect. Id.
Further, if ongoing lease payments were not made within a certain 13 time period, the affected creditor could also cancel the Creditors 14 Agreement. Id. at 9 ¶ 7.4.1. In addition, "the Creditors reserve 15 all of their rights to commence any action or proceeding against 16 the relevant counterparty under the relevant Container Lease 17 Agreements / Leasing Contracts and/or Charter Party Agreements to 18 which they are party. This right shall be in addition to and 19 shall not replace or amend any existing rights, terms or 20 conditions contained in the Container Lease Agreements / Leasing 21 Contracts and/or Charter Party Agreements." Id. at 9-10 ¶ 7.4.2.
The Creditors Agreement also included clauses establishing a 23 condition precedent: 24
9.1 The restructuring shall be subject to the Condition Precedent that the Company provides evidence of the undertaking from the New Investor, in which the New Investor guarantees:
(a) the New Investor's investment and capital injection into the Company;
(b) that a minimum of USD 30,000,000 (United States Dollars Thirty Million only) of the New Investor's investment and capital injection will be invested in the bulker business of the Company; and
(c) that the New Investor unconditionally and irrevocably agrees and acknowledges that its investment and capital injection into the Company shall always be subordinated to the Total Overdue Amount, less the amount already paid by the Company to the Creditors pursuant to this Creditors Agreement.
9.3 The Creditors Agreement will be effective as from the Effective Date, which shall be evidenced by confirmation in writing by Roland Berger Strategy Consultants addressed to all Parties.
9.4 Notwithstanding any provision in this Creditors Agreement to the contrary, the Creditors Agreement shall not become effective unless and until the Conditions Precedent set out in clause 9.1 has been satisfied.
Id. at 10 ¶¶ 9.1, 9.3, 9.4. 16
Like the earlier agreement, the Creditors Agreement included 17 a venue selection clause: 18
The parties irrevocably agree that the Courts of England and Wales shall have exclusive jurisdiction to determine any dispute or claim (including non-contractual disputes or claims) arising under or in connection with the Creditors Agreement.
Id. at 13 ¶ 19.2. 22
The Creditors Agreement also stated,
In the event of any conflict between this Agreement and (i) any amendment to the Charter Party and / or Leasing Contracts, according to which the terms of this Agreement are implemented, or (ii) any other agreement, which is concluded for the purpose of the implementation of the terms of this Agreement, the terms of this Agreement shall prevail.
Id. at 13 ¶ 18.2. 28
Also on September 30, 2010, CAI entered into a Letter Agreement with multiple parties, again including Maruba SA and 3 SACL but not Maritima Maruba. Id. at ¶ 7, Ex. C. The Letter 4 Agreement was drafted by counsel for Maruba SA and SACL. Id. at 5
¶ 7. In consideration for CAI entering into the Creditors 6 Agreement, Maruba SA agreed to pay the overdue amount that CAI 7 agreed to waive in the Creditors Agreement and to return the 8 containers to CAI. Id. at ¶ 7, Ex. C at 1-2. The Letter 9 Agreement provided, 10 In the event that Maruba fails to make payment to CAI on the terms set forth above, the Creditors Agreement may be immediately cancelled by CAI and the respective full current Outstanding Debt shall fall automatically due and payable to CAI without further notice.
2 ¶ 3. It also contained a forum selection clause: 14
CAI may require that any dispute or proceeding arising out of or relating to this Letter Agreement shall, at CAI's sole option and discretion be brought only in state or federal courts having jurisdiction over the City and County of San Francisco or before the American Arbitration Association in San Francisco under its Commercial Arbitration Rules. Each of the Maruba Companies consents to jurisdiction and venue in those courts. CAI may opt to commence or allow proceedings in any other jurisdiction.
3 ¶ 9. 20
The parties dispute whether the conditions precendent to the Creditors Agreement were ever met, and thus whether that agreement 22 became effective. With their replies, SACL and Maruba SA 23 submitted a letter dated October 18, 2010 and purportedly written 24 by Nils R. Kuhlwein von Rathenow of Roland Berger Strategy 25 Consultants. Swenson Maruba SA Reply Decl. ¶ 2, Ex. 1. The 26 letter is addressed to "all creditors of Maruba S.A." and bears 27 the subject line "Conditions for effectiveness of the creditor 28 agreement MARUBA." Id. It states that the new investor had 2 signed a confirmation letter fulfilling the conditions precedent 3 set forth in clause 9.1 of the Creditors Agreement and that 4 "Roland Berger Strategy Consultants (RBSC) hereby confirms, that 5 the conditions for the effectiveness of the creditors agreement 6 . . . are fulfilled." Id. CAI never received this letter, or any 7 other evidence of the undertaking from the new investor as 8 required by paragraph 9.1 of the Creditors Agreement, and disputes 9 its authenticity. Teixeira Maruba SA Decl. ¶ 8; Declaration of 10 Nadine Teixeira in Supp. of Pl.'s Opp. to Def. SACL's Mot. to Dismiss (Teixeira SACL Decl.) ¶ 6-8. Marcelo Sibione, the operational director of Maruba SA, attests that he received a copy 13 of this letter by email from von Rathenow on October 20, 2012, but 14 does not provide a copy of the email to which the letter was 15 attached, or attest that the other parties to the Creditors 16 Agreement were included on the email. Sibione Decl. ¶ 6.*fn3
The debtors, including SACL, made only a small initial 18 payment in late 2010, of less than the amount that would have been 19 required under the Creditors Agreement and not on the deadline set forth in the Creditors Agreement. Teixeira SACL Decl. ¶ 10. 2
Maruba SA also never made payment to CAI according to the payment 3 schedule set forth in the Letter Agreement and never returned any 4 containers to CAI pursuant to the Letter Agreement. Id. 5 On December 21, 2010, the parties to the Creditors Agreement 6 executed an addendum to that agreement. Teixiera Maruba SA Decl. 7 ¶ 6, Ex. B, 22-27. The addendum stated that, in the original 8 Creditors Agreement, the Company agreed that it would "within 30 9 days after the Effective Date pay to the Creditors the Payable 10 Overdue Amount in full," but that for "several reasons it was not possible for the Company to comply with their obligations under 12 the Creditors Agreement and to pay to the Creditors the Payable 13 Overdue Amount accordingly." Id. at 1-2. In the addendum, the 14 parties agreed to change the due dates for certain payments of the 15 overdue debt, but that "all other terms and conditions of the 16 Creditors Agreement shall remain in full force and effect and be 17 unaffected hereby." Id. at 1.1-2. 18 On March 14, 2011, CAI sent Defendants a letter titled, "Termination for Default of all Lease Agreements between CAI 20 International, Inc, as Lessor ('CAI'), and South Atlantic 21 Container Lines Ltd. ('Lessee')." Teixiera Maruba SA Decl. ¶ 10, 22 Ex. D. In the letter, CAI stated that it "formally declares with 23 immediate effect the default" of the three lease agreements 24 between itself and SACL. Id. 25 On May 17, 2011, CAI initiated this action. Docket No. 1.
In the complaint, CAI alleges that Defendants breached the lease 27 and guaranty agreements, and seeks compensation from Defendants 28 for outstanding leasing charges, the replacement value of containers that were not returned, the cost of repairs to 2 containers that were returned and liquidated damages. CAI does 3 not refer to the Creditors Agreement or Letter Agreement in the 4 complaint. 5
On November 18, 2011, upon CAI's motion, the clerk entered 6 default as to SACL. Docket No. 13. 7
On May 14, 2012, after Maruba SA filed its reply in support 8 of its motion to dismiss, CAI sent Defendants a letter stating 9 that it cancelled the Creditors Agreement because they had not 10 made the required payments or returned the leased containers.
Teixeira SACL Decl. ¶ 12, Ex. F. In the letter, CAI reserved its arguments that the Creditors Agreement had not come into effect or 13 was already cancelled. Id. 14
A defendant may raise a Rule 12(b)(3) motion to dismiss for 16 improper venue in its first responsive pleading or by a separate 17 pre-answer motion. See Federal Rule of Civil Procedure 12(h)(1). 18 Once the defendant challenges venue, the plaintiff bears the 19 burden of establishing that venue is proper. Piedmont Label Co. 20 v. Sun Garden Packing Co., 598 F.2d 491, 496 (9th Cir. 1979). 21 When considering a Rule 12(b)(3) motion to dismiss, "the 22 pleadings need not be accepted as true, . . . and the court may 23 consider facts outside of the pleadings." Murphy v. Schneider 24 Nat'l, Inc., 362 F.3d 1133, 1137 (9th Cir. 2004) (internal 25 quotations and citations omitted). If there are material factual 26 issues in genuine dispute, it is "within the sound discretion of 27 the district court" to elect to hold an evidentiary hearing on the 28 disputed facts, in order to weigh evidence, assess credibility and make factual findings necessary to resolve the motion. Id. at 2 1139-40. Alternatively, the court may deny the motion "while 3 granting leave to refile it if further development of the record 4 eliminates any genuine factual issue." Id. at 1139. If the court 5 does not hold an evidentiary hearing, it "must draw all reasonable 6 inferences in favor of the non-moving party and resolve all 7 factual conflicts in favor of the non-moving party." Id. at 8 1138-40. 9
SACL and Maruba SA move to dismiss this action. They argue that, although CAI's complaint did not mention the Creditors Agreement, its claims necessarily implicate that agreement, which 13 restructured the debt between the parties. They contend that the 14 action is thus subject to the forum selection clause in the 15 Creditors Agreement, which specifies England and Wales as the 16 forum. 17
The Court does not reach the parties' arguments regarding 18 whether the conditions precedent for the Creditors Agreement were 19 met and thus whether it was ever effective, because the Court 20 concludes that CAI's undisputed valid termination of the agreement 21 precludes the application of forum selection clause to the instant 22 dispute.*fn4
SACL and Maruba SA argue that their breach of the
obligations of the Creditors Agreement should not excuse the
requirement that CAI comply with the forum selection clause. 2
However, SACL and Maruba SA do not acknowledge that a termination 3 or cancellation of a contract may have a different effect than the 4 breach of a contract. "A breach by a party to a contract does not 5 in itself cancel the contract." Comedy Club, Inc. v. Improv W. 6 Associates, 553 F.3d 1277, 1289 (9th Cir. 2009).*fn5 "Cancellation 7 of a contract occurs when either party puts an end to the contract 8 for breach by the other." Id. (internal quotations omitted). 9
"Termination occurs when either party pursuant to a power created 10 by agreement or law puts an end to the contract otherwise than for its breach." Id. at 1289 n.13.
Here, CAI's valid cancellation of the Creditors Agreement, 13 pursuant to the power granted to it in that contract, put an end 14 to the obligations of either party to continue performing 15 thereunder in the future. As a result, the relationship between 16 the parties, set up by the lease and guaranty agreements, was no 17 longer subject to the restructuring of debt created by the 18 Creditors Agreement. Thus, CAI's claims do not arise "under or in 19 connection with the Creditors Agreement," as SACL and Maruba SA 20 argue, and are not subject to the forum selection clause therein. 21
The parties do not dispute that CAI has the right to commence 2 an action to enforce the obligations under the lease and guaranty 3 agreements. Indeed, the Creditors Agreement specifically reserved 4 to CAI the right to commence any action or proceeding against 5 Defendants under the relevant lease agreements, and noted that 6 CAI's existing rights in the lease agreements were not replaced or 7 amended. Texiera Maruba SA Decl., Ex. B, at 9-10 ¶ 7.4.2. 8
Because CAI is seeking to enforce its rights in the original 9 agreements, and is not suing for damages for Defendants' failure 10 to perform their obligations under the Creditors Agreement itself, this case is distinguishable from those in which the plaintiff is suing based on the terminated or cancelled agreement. When a 13 contract is terminated or cancelled, parties retain the right to 14 sue at least on past breaches. See, e.g., 1 Witkin Sum. Cal. Law 15 Contracts § 925. In those situations, where the plaintiff's 16 claims are based on a breach of the terminated or cancelled 17 contract, a forum selection clause in that contract may survive 18 the termination or cancellation. See, e.g., Modern Am. Recycling 19 Servs. v. Dunavant, 2011 U.S. Dist. LEXIS 39768, at *9 (E.D. La.) 20 (applying forum selection clause where the claims arose out of a 21 terminated contract); TriState HVAC Equip., LLP v. Big Belly 22 Solar, Inc., 752 F. Supp. 2d 517, 535-37 (E.D. Pa. 2010) (same). 23
For this reason as well, SACL and Maruba SA's argument that the 24 forum selection clause would be rendered meaningless if it were 25 not applied to this case is incorrect; the clause might be 26 applicable to an action brought by CAI for Defendants' past breach 27 of the Creditors Agreement itself.
SACL also argues that, even if the forum selection clause in 2 the Creditors Agreement is not applied, this action should be 3 dismissed or transferred because the assigned judge is currently 4 located in the Oakland Division of the Northern District of 5 California and the first two lease agreements provide that "the 6 parties consent to the jurisdiction of State and Federal Courts 7 located in San Francisco, California, U.S.A." Teixeira Maruba SA 8 Decl. ¶ 4, Ex. E at ¶ 11(a), Ex. F at ¶ 11(a).*fn6 9
The forum selection clauses in the first two lease agreements 10 are not mandatory, and are instead permissive. California Dist. Council of Laborers v. Pittsburg-Des Moines Steel Co., 69 F.3d 1034, 1037 (9th Cir. 1995) ("To be mandatory, a clause must 13 contain language that clearly designates a forum as the exclusive 14 one."). See also Hunt Wesson Foods, Inc. v. Supreme Oil Co., 817 15 F.2d 75 (9th Cir. 1987) (concluding that a forum selection clause 16 that stated that a particular court "shall have jurisdiction over 17 the parties in any action" was permissive and not mandatory). 18
Here, the relevant clauses do not state that the action may be 19 litigated only San Francisco. Accordingly, the clauses do not provide an exclusive venue of San Francisco and the Court need not 2 reach whether venue would nevertheless be appropriate if the 3 clauses did create exclusive jurisdiction in San Francisco. 4
For the reasons set forth above, the Court GRANTS SACL's 6 motion to set aside default (Docket No. 29) and denies Maruba SA 7 and SACL's motions to dismiss for improper venue (Docket Nos. 27 8 and 30). 9
IT IS SO ORDERED.