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South County Professional Park v. Orchard Supply Co. LLC

United States District Court, N.D. California, San Jose Division

July 21, 2014

SOUTH COUNTY PROFESSIONAL PARK, LTD., Plaintiff,
v.
ORCHARD SUPPLY COMPANY LLC, et al., Defendants.

ORDER REMANDING CASE (Re: Docket Nos. 13, 14 and 24)

PAUL S. GREWAL, Magistrate Judge.

Before the court is Plaintiff South County Professional Park, LTD's motion to remand.[1] Defendants Orchard Supply Company LLC, Lowe's Companies, Inc., Lowe's Home Centers, LLC and Lowe's Home Improvement, LLC oppose. The parties appeared for a hearing this morning.[2] After considering the arguments, the court GRANTS South County's motion.

I. BACKGROUND

South County is the owner of Orchard Center, a small shopping center located in Watsonville, anchored by an OSH store.[3] OSH is now owned by national retailer Lowe's.[4] On or about April 17, 1986, South County, as landlord, and Grace Retail Corporation, as tenant, entered into a written commercial lease for the OSH store at Orchard Center. The lease was drafted by the tenant and on the tenant's form.[5] Article 20, Section 19 of the lease provides that the lease "shall be governed by the laws of the State of California, " and includes a forum selection clause that requires: "Any action to enforce the terms of this lease shall be brought in the proper Court of the State of California which shall have jurisdiction over said matter."[6]

South County alleges OSH "neglected its basic obligations" under the lease curbing sales.[7] In June of 2013, OSH went bankrupt.[8] In August 2013, the lease was assumed and assigned in OSH's bankruptcy and South County's rights to pursue its claims were preserved for adjudication outside of the Bankruptcy Court, "in the Santa Cruz County Superior Court or any court of competent jurisdiction."[9] The Bankruptcy Court order did not amend the lease and as a result of the assignment, South County alleges the tenant's interest under the lease is now owned, managed, and controlled by Defendants in this action.[10]

After the assignment, Defendants allegedly committed additional breaches of the lease.[11] On April 21, 2014, South County filed suit in Santa Cruz County Superior Court. On May 21, 2014, Defendants removed.[12] South County brings claims for (1) breach of the lease agreement, [13] (2) reformation of the lease agreement[14] and (3) declaratory relief.[15]

II. LEGAL STANDARDS

A. Forum Selection Clauses

Pursuant to federal law, forum selection clauses are "prima facie valid" and enforceable unless the opposing party clearly shows "that enforcement would be unreasonable and unjust, or that the clause" is "invalid for such reasons as fraud or overreaching."[16] The federal rule "controls enforcement of forum clauses in diversity cases."[17] "The opposing party has the burden "to show that trial in the contractual forum would be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court."[18] When considering a forum selection clause, the "plain language of the contract should be considered first with the understanding that the common or normal meaning of language will be given to the words of a contract unless circumstances show that in a particular case a special meaning should be attached to it."[19] When considering forum selection clauses, the "fundamental rule of contract interpretation" applies: ambiguous language is construed "against the drafter of the contract."[20]

III. DISCUSSION

A. "Shall be Brought" Constitutes Mandatory Language

Under Ninth Circuit authority, the phrase "shall be brought" in a forum selection clause makes the clause mandatory. In Robeson, the plaintiff sued in California superior court and defendants removed.[21] Plaintiff moved to remand based on the forum selection clause, which stated any "litigation associated with this contract shall be brought in State Court of Sacramento County, California."[22] The district court remanded, finding that courts in the Ninth Circuit "have construed identical language as mandatory and held that it requires exclusive jurisdiction in the designated forum."[23] Despite Defendants' argument that "shall be brought" only required the plaintiff to sue in state court - and thus did not require remand - the Robeson court rejected this claim, holding that "would deprive the forum selection clause of any effect and is therefore untenable."[24]

B. "Courts of" Limits Jurisdiction to the Superior Court

In Simonoff the Ninth Circuit held the phrase "courts of" within a forum selection clause limits jurisdiction to state courts.[25] Specifically, "the rule we adopted in Doe 1 is that a forum selection clause that specifies courts of' a state limits jurisdiction to state courts, but specification of courts in' a state includes both state and federal courts."[26] Here, the plain language of the lease's forum selection clause limits contract enforcement claims to California state court The lease's forum selection clause states: "Any action to enforce the terms of this Lease shall be brought in the proper Court of the State of California which shall have jurisdiction over said matter." Each cause of action seeks to enforce the terms of the lease and the phrase "shall be brought" makes the forum selection clause mandatory. The contract language therefore only permits jurisdiction in California state court.

C. South County's Breach of Contract Claims Shall be Adjudicated in State Court

In the face of explicit guidance from the Ninth Circuit regarding the combination of "shall be brought" and "courts of" language, Defendants urge remand is not warranted because the claims do not seek enforcement, but reformation, of the contract. South County relies on an interpretation of the contract that is a stretch - Defendants say - because South County seeks reformation of the contract to meet what the parties' allegedly initially believed they were agreeing to. Moreover, although the plain language of the forum selection clause requires both the interpretation and enforcement of the contract to proceed under California law, the contract only suggests enforcement actions must be limited to state court.[27] In sum, Defendants conclude that removal of South County's reformation claim is permissible and the court exercise its discretion and attach supplemental jurisdiction over the breach of contract claim.

While Defendants' arguments are colorable, they do not overcome the strength of South County's position: it entered a lease agreement with Defendants' predecessor-in-interest that bound future enforcement claims to be brought in state court.[28] Because (1) Defendants' predecessors-in-interest drafted this contract, [29] (2) removal remains disfavored, [30] (3) an interpretation of a forum selection clause to avoid case splitting also is favored, [31] (4) non-parties may be subject to a forum selection clause where their conduct is closely related to a contractual relationship, [32] (5) a contract may be first revised and then specifically enforced[33] and, perhaps most significantly, (6) all of the claims alleged seek enforcement of rights under a contract with a mandatory forum selection clause, [34] remand of the entire case is warranted.

Because this case is remanded to state court, Defendants pending motions to dismiss are DENIED-AS-MOOT.[35]

IT IS SO ORDERED.


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