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Clippercreek, Inc. v. Intelligrated Systems, LLC

United States District Court, E.D. California

January 14, 2020

CLIPPERCREEK, INC., a California corporation, Plaintiff,
INTELLIGRATED SYSTEMS, LLC, a Delaware limited liability; HONEYWELL INTERNATIONAL, INC., a Delaware corporation, DEPOSCO, INC., a Georgia corporation, and DOES 1 through 50, inclusive, Defendant.



         Plaintiff Clippercreek, Inc. (“Clippercreek”) brings this action against defendants Intelligrated Systems, LLC (“Intelligrated”), Honeywell International, Inc. (“Honeywell”), Deposco, Inc. (“Deposco”), and Does 1 through 50, alleging that defendants fraudulently induced plaintiff into a contract for specialized custom technology and subsequently failed to perform their obligations under the agreement. Before the court are defendants' motions to dismiss, or, in the alternative, to transfer venue. (Docket Nos. 29, 30).

         I. Factual Allegations and Procedural Background

         Clippercreek manufactures and sells electric vehicle charging stations. (Compl. ¶ 19.) Honeywell purchased Intelligrated in 2016. (Compl. ¶ 20.) In late 2017 to early 2018, Honeywell partnered with Deposco to sell integrated warehouse management solutions, order management solutions, and material handing solutions to Clippercreek. (Compl. ¶ 23.) Defendants toured Clippercreek's headquarters to study plaintiff's manufacturing process. (Compl. ¶ 24.) Defendants then held a series of marketing and sales meetings where they represented that defendants could design an automated system that could be integrated into Clippercreek's manufacturing, material management, and internet sales systems. (Compl. ¶ 25.)

         The parties subsequently entered into a contract consisting of three documents: (1) the Master Technology Agreement (“MTA”), (2) the Sales Agreement, and (3) the Intelligrated Proposal FQ-18-51002. (Compl. ¶¶ 28-30.) The MTA included a forum-selection clause. (Compl. Ex. 1, at 13, ¶ 18.2.) The clause requires the parties to bring any action under the agreement in the Southern District of Ohio. (Id.) Pursuant to the contract, plaintiff paid defendants a deposit. (Compl. ¶ 40.)

         Prior to and after signing the contract, defendants assured plaintiff that defendants' product would integrate Clippercreek's manufacturing requirements. (Compl. ¶¶ 33, 35, 38.) For example, after the contract was signed, defendants assured plaintiff that the system would have the ability to auto-generate serial labels. (Compl. ¶ 37.) When Deposco sent its engineers to Clippercreek's headquarters to integrate the technology, however, the engineers told plaintiff that the system would not be able to perform some of the “essential requirements for manufacturing.” (Compl. ¶ 45.) Two days after Deposco sent its engineers to plaintiff's headquarters, Clippercreek notified defendants of its immediate rescission of the contract. (Compl. ¶ 52). Plaintiffs demanded a return of the deposit, but defendants refused to comply with the demand. (Compl. ¶¶ 52, 56.)

         Plaintiff then filed this action alleging the following six claims under California state law: (1) rescission by mutual and/or unilateral mistake, (2) rescission by lack of consideration, (3) rescission by fraud, (4) negligent misrepresentation, (5) breach of contract, and (6) unfair competition, pursuant to California Business & Professions Code § 17200 et seq. Defendants now move to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), or, in the alternative, transfer the case to the Southern District of Ohio, pursuant to 28 U.S.C. § 1404(a), in accordance with the agreement's forum-selection clause.[1]

         II. Validity of Forum-Selection Clause

         Forum selection clauses “are presumptively valid” and “should be honored ‘absent some compelling and countervailing reason.'” Murphy v. Schneider Nat'l, Inc., 362 F.3d 1133, 1140 (9th Cir. 2004) (quoting M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12 (1972)); see also Atl. Marine Const. Co. v. U.S. Dist. Court for W. Dist. of Texas, 571 U.S. 49, 63 (2013) (“[A] valid forum-selection clause [should be] given controlling weight in all but the most exceptional cases.”). The party opposing the enforcement of a forum selection clause has the “heavy burden” of showing that it is “‘unreasonable' under the circumstances.” Bremen, 407 U.S. at 10, 18. A forum selection clause is unreasonable under three circumstances: “(1) ‘if the inclusion of the clause in the agreement was the product of fraud or overreaching'; (2) ‘if the party wishing to repudiate the clause would effectively be deprived of his day in court were the clause enforced'; [or] (3) ‘if enforcement would contravene a strong public policy of the forum in which suit is brought.'” Murphy, 362 F.3d at 1140 (quoting Richards v. Lloyd's of London, 135 F.3d 1289, 1294 (9th Cir.1998)).

         Plaintiff does not contend that enforcement of the clause would contravene California public policy. The court therefore evaluates only the first two exceptions to the enforcement of forum-selection clauses.

         1. Fraud and Overreaching

         Plaintiff argues that “[t]he [complaint] makes a strong showing that . . . the MTA containing the forum-selection clause . . . was affected by fraud, undue influence and a huge differential in bargaining power.” (Pl.'s Opp. to Mot. to Dismiss at 14 (Docket No. 33).)

         Plaintiff's allegations are insufficient to decline enforcement of the forum-selection clause on the grounds of fraud. “For a party to escape a forum selection clause on the grounds of fraud, it must show that ‘the inclusion of that clause in the contract was the product of fraud or coercion.'” Richards, 135 F.3d at 1297 (quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 518 (1974)). To do so, a party “must show that the inclusion of the clause itself into the agreement was improper; it is insufficient to allege that the agreement as a whole was improperly procured.” Mahoney v. Depuy Orthopaedics, Inc., No. 2:7-cv-1321 AWI SMS, 2007 WL 3341389, at *7 (E.D. Cal. Nov. 8, 2007); see also Scherk, 417 U.S. at 519 n. 14 (The fraud exception in Bremen “does not mean that any time a dispute arising out of a transaction is based upon an allegation of fraud . . . the clause is unenforceable.”); Richards, 135 F.3d at 1297 (“[S]imply alleging that one was duped into the signing of the contract is not enough.”).

         Here, the complaint alleges that defendant fraudulently induced plaintiff into signing the MTA. The complaint does not, however, allege that defendant fraudulently introduced the forum-selection clause into the agreement. Indeed, the complaint does not even mention the forum-selection clause. Plaintiff therefore cannot avoid enforcement of the clause on the grounds of fraud. Cf. Richards, 135 F.3d at 1297 (finding that a forum-selection clause was not ...

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