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Southern California Regional Rail Authority v. Hyundai Rotem Company

United States District Court, C.D. California

July 13, 2017

Southern California Regional Rail Authority
Hyundai Rotem Company






         I. Introduction

         The Southern California Regional Rail Authority (“Plaintiff”) brought this action in the Los Angeles Superior Court (“LASC”) against Hyundai Rotem Company (“Defendant”) for breach of contract, breach of warranty and indemnity arising out of a contract for the manufacture of railcars by Defendant for Plaintiff. Dkt. 1-2. On October 28, 2016, Defendant removed this action. Dkt. 1. On November 30, 2016, Plaintiff filed a Motion to Remand. Dkt. 20. Defendant opposed the Motion to Remand (Dkt. 25), and Plaintiff replied. Dkt. 34.

         On November 16, 2016, Defendant filed a Counterclaim. Dkt. 16. On January 11, 2017, Defendant filed a First Amended Counterclaim (“FACC”). Dkt. 35. On January 25, 2017, Plaintiff filed a Motion to Dismiss the FACC. Dkt. 39. Defendant opposed the Motion to Dismiss (Dkt. 40), and Plaintiff replied. Dkt. 42.

         On March 13, 2017, a hearing on the Motions was held and they were taken under submission. Dkt. 43. For the reasons stated in this Order, the Motions are DENIED.

         II. Factual Background

         A. The Parties

         Plaintiff is a government authority that operates the Metrolink commuter rail system in Southern California. Dkt. 1-2 ¶ 1. Defendant is a corporation formed under the law of South Korea and whose principal place of business is there. Id. ¶ 7.

         B. The Contract

         On April 13, 2006, the parties entered a contract pursuant to which Defendant agreed to design and manufacture railcars for Plaintiff for a total price of $305, 974, 486 (the “Contract”). Id. ¶ 13. The Complaint alleges that under the terms of the Contract, Defendant was responsible for making all decisions as to the design of the railcars. Id. ¶ 15. It also alleges Defendant agreed to indemnify Plaintiff for any losses it sustained as a result of Defendant's actions in performing under the Contract. Id. ¶ 17. Defendant also provided a two-year warranty for all work, and a 15-year warranty for work relating to the carbody and underframe of the railcars. Id. The Complaint alleges that the last delivery under the Contract was in April 2014. Id. ¶ 18.

         C. Alleged Design Defects and the Oxnard Crash; Claims Asserted

         The Complaint alleges that Defendant's design of the railcars was defective. Id. ¶ 2. It alleges that the pilot, or cowcatcher, of the railcars was defectively designed and inadequately attached to the railcars. Id. “The pilot is a critical safety component that is located at the front end of the cab car and is required to prevent collision debris from getting under the train's wheels that could cause it to derail.” Id. ¶ 1. The Complaint alleges: “in February 2015 . . . a Metrolink train with a Hyundai-built cab car at the front collided with a pickup truck that had stopped on the tracks in Oxnard. The pilot broke off from the cab car and the train derailed.” Id. ¶ 3.[1]

         After the Oxnard Crash, Plaintiff began an investigation into the railcars and accompanying pilots. Id. ¶ 24. It allegedly “revealed multiple fleet-wide defects” in Defendant's railcars and pilot assemblies. Id. The Complaint alleges that the “design of the pilot assembly was defective as well.” Id. ¶ 27. It also alleges that Defendant refused to cooperate with Plaintiff in curing the defects in the railcars and as a result, Plaintiff had to lease another locomotive to place in front of its railcars whose cost to Plaintiff exceeded $20 Million. Id. ¶ 35.

         Based on these allegations, the Complaint advanced the following causes of action: (i) breach of written contract; (ii) breach of express warranty; (iii) breach of implied warranty of merchantability; (iv) breach of implied warranty of fitness for a particular purpose; and (v) express indemnity. Id. ¶¶ 37-72.

         D. Allegations in the FACC

         The FACC advances two causes of action: (i) breach of contract and (ii) breach of the implied covenant of good faith and fair dealing. In support of these claims, the FACC alleges that, pursuant to the terms of the Contract, the parties participated in a design review process. During that process, the parties allegedly held frequent meetings concerning the design of the railcars, including the pilot. FACC ¶¶ 16-17. This process led to the approval of Defendant's designs by LTK, the firm designated by Plaintiff to provide engineering services. Id. The FACC alleges the LTK had broad authority to approve and modify the technical specifications for the design of the railcars. Id. ¶¶ 18-19. It also alleges that Plaintiff approved, inspected and tested Defendant's proposed designs, which were then finalized. Id. ¶¶ 22-24, 31. The FACC also alleges that Plaintiff tested, inspected and approved each final railcar. Id. ¶¶ 25-31.

         The FACC alleges that Defendant performed all of its obligations under the Contract. Id. ¶ 32. It also alleges that, on July 1, 2015, Plaintiff agreed that it would pay to Defendant $4, 991, 498.89, which was the total amount that was due under the Contract. Id. ¶ 33. The payment was allegedly to be made by September 15, 2015. It is alleged that Plaintiff failed to make that payment. Id. ¶ 34. It also alleged that, on October 30, 2015, Plaintiff confirmed that it would not make the final payment in light of the Oxnard Crash and the other design problems Plaintiff discovered as a result of the investigation that it conducted after that incident. Id. ¶¶ 34-35.

         The FACC alleges that the Oxnard Crash and derailment was caused by the negligence of the truck driver and not by any defects in the design or manufacture of the pilot or railcars. Id. ¶ 36. It also alleges that Plaintiff disclosed a confidential, internal report to the Los Angeles Times that concluded that the crash was due to defects in Defendant's design of the pilot. Id. ¶ 38.

         III. Analysis

         A. Motion to Remand

         1. General Legal Standards

         A motion to remand is the procedural tool to challenge the removal of an action. Moore-Thomas v. Alaska Airlines, Inc., 553 F.3d 1241, 1244 (9th Cir. 2009). Generally, a civil action may be removed only if it could have been brought originally in a federal court. 28 U.S.C. § 1441(a). Federal courts have diversity jurisdiction where the amount in controversy exceeds $75, 000 and is between parties who are citizens of different states. 28 U.S.C. §§ 1332, 1441. The removal statute is to be strictly construed; any doubt about removal jurisdiction is to be resolved in favor of remand. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). The result of the presumption against removal is that a removing party has the burden of establishing that removal was proper. Id. “If a case is improperly removed, the federal court must remand the action because it has no subject-matter jurisdiction to decide the case.” ARCO Envtl. Remediation, LLC v. Dep't of Health & Envtl. Quality of Mont., 213 F.3d 1108, 1113 (9th Cir. 2000).

         2. Application

         Plaintiff contends that the Contract that gives rise to this dispute contains a forum selection clause that specifies the state courts of California as the exclusive forum. Defendant argues that remand is improper because this Court has subject matter jurisdiction and the forum selection clause is permissive, not mandatory.

         a) Legal Standards for Applying a Forum Selection Clause

         Federal law governs the interpretation of a forum selection clause. Doe 1 v. AOL LLC, 552 F.3d 1077, 1081 (9th Cir. 2009). When “interpret[ing] a contract under federal law, [the court] look[s] for guidance ‘to general principles for interpreting contracts.'” Id. (quoting Klamath Water Users Protective Ass'n v. Patterson, 204 F.3d 1206, 1210 (9th Cir. 1999)). “Contract terms are to be given their ordinary meaning, and when the terms of a contract are clear, the intent of the parties must be ascertained from the contract itself. Whenever possible, the plain language of the contract should be considered first.” Id. (quoting Klamath Water Users Protective Ass'n., 204 F.3d at 1210. “A primary rule of interpretation is that ‘[t]he 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.'” Hunt Wesson Foods, Inc. v. Supreme Oil Co., 817 F.2d 75, 77 (9th Cir. 1987) (quoting 4 S. Williston, A Treatise on the Law of Contracts § 618 (W. Jaeger 3d ed. 1961)). A written contract is to be read as a whole, and each part interpreted with reference to the whole. Doe 1, 552 F.3d at 1081.

         “Ninth Circuit precedent requires that the court pay careful attention to whether the language in a forum selection clause is mandatory or permissive. If the language is mandatory, the clause must be enforced and venue will lie in the designated forum only.” Calisher & Assocs., Inc. v. RGCMC, LLC, 2008 WL 4949041, at *3 (C.D. Cal. Nov. 17, 2008), aff'd sub nom. Calisher & Assocs., Inc. v. RGCM, LLC, 373 F.App'x 697 (9th Cir. 2010). “A forum selection clause that designates a state court as the exclusive forum is a mandatory clause requiring that the case be remanded.” Chinatrust Bank (U.S.A.) v. Aclor, Inc., 2011 WL 1668393, at *1 (N.D. Cal. May 3, 2011). “[W]here venue is specified with mandatory language the clause will be enforced. When only jurisdiction is specified the clause will generally not be enforced without some further language indicating the parties' intent to make jurisdiction exclusive.” Docksider, Ltd. v. ...

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