LIBERTY BANK, F.S.B., Plaintiff-Appellee, vs. BEST LITHO, INC. and ED GARCIA, et al., Defendants-Appellants.
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IN THE COURT OF APPEALS OF IOWA
No. 7-046 / 05-0791
Filed April 25, 2007
LIBERTY BANK, F.S.B.,
Plaintiff-Appellee,
vs.
BEST LITHO, INC. and ED GARCIA,
et al.,
Defendants-Appellants.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, Scott D. Rosenberg,
Judge, Robert A. Hutchison, Judge, and Eliza J. Ovrom, Judges.
Nonresident defendants appeal from the district court’s interlocutory
rulings denying their motions for summary judgment.
AFFIRMED AND
REMANDED FOR FURTHER PROCEEDINGS.
Andrew B. Howie and Michael P. Mallaney of Hudson, Mallaney &
Shindler, P.C., West Des Moines, for appellants.
Bernard L. Spaeth, Thomas H. Burke, and Nicholas Cooper of Whitfield &
Eddy, P.L.C., Des Moines, for appellee.
Heard by Sackett, C.J., and Vogel and Miller, JJ.
2
MILLER, J.
Best Litho, Inc. and Ed Garcia, individually, Air Filter Engineers, Inc.,
DesignPoint, Inc. and Les M. McCoy, individually, and Davis Delivery Service,
Inc. (collectively “renters”) appeal, following grants of interlocutory appeals, from
the district court’s rulings denying their motions for summary judgment that
asserted a lack of personal jurisdiction.
We affirm and remand for further
proceedings.
I.
BACKGROUND FACTS AND PROCEEDINGS.
The summary judgment records reveal the following undisputed facts.
Each renter entered into an Equipment Rental Agreement with NorVergence,
Inc., a New Jersey corporation, to lease communications equipment. The rental
agreements authorized NorVergence to assign its interest without notifying the
renters and provided that the assignee would have the same rights as
NorVergence. After the parties executed the rental agreements, NorVergence
assigned the agreements to Liberty Bank, F.S.B., a federal savings bank with its
primary place of business in West Des Moines, Iowa. NorVergence sent the
renters notice the rental agreements had been assigned to Liberty Bank. The
Notice of Assignment stated that “[a]ll terms and conditions remain unchanged
with the exception that” payments must be made to Liberty Bank in Des Moines,
Iowa.
Liberty Bank filed breach of contract suits in Polk County, Iowa, alleging
the renters failed to make payments pursuant to the rental agreements. None of
3
the renters are residents of Iowa. 1 However, each rental agreement contained
the following identical forum-selection clause in bold:
APPLICABLE LAW: . . . This agreement shall be governed by,
construed and enforced in accordance with the laws of the State in
which Rentor’s principal offices are located or, if this Lease is
assigned by Rentor, the State in which the assignee’s principal
offices are located . . . and all legal actions relating to this Lease
shall be venued exclusively in a state or federal court located within
that State, such court to be chosen at Rentor or Rentor’s
assignee’s sole option. . . .
Each renter filed an answer, denying the material allegations of the petitions and
asserting lack of personal jurisdiction as an affirmative defense. The renters
subsequently filed motions for summary judgment, seeking dismissal of the
actions for lack of personal jurisdiction. The district court denied each of the
motions.
The renters filed applications for interlocutory review, which our supreme
court granted and consolidated the cases for purposes of appeal. The renters
claim the district court erred in concluding that the forum selection clause can
serve as the basis for personal jurisdiction.
They argue the forum selection
clause is unenforceable because the clause is indefinite and open-ended. The
renters further argue they lack the necessary minimum contacts with the State of
Iowa to establish personal jurisdiction. Liberty Bank claims the district court was
correct in its conclusion the forum selection clause is enforceable, and therefore,
a minimum contacts analysis is not necessary. Liberty Bank further claims the
1
Best Litho’s principal place of business is located in Florida; Ed Garcia is a resident of
Florida; Air Filter’s principal place of business is located in Illinois; Davis Delivery
Services’ principal place of business is located in Georgia; DesignPoint’s principal place
of business is located in Pennsylvania; and Les McCoy is a resident of Pennsylvania.
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renters waived any defense of lack of personal jurisdiction, as their conduct does
not reflect a continuing objection to the exercise of personal jurisdiction.
II.
SCOPE AND STANDARDS OF REVIEW.
We review the district court’s summary judgment rulings for the correction
of errors at law. Iowa R. App. P. 6.4; Faeth v. State Farm Mut. Auto. Ins. Co.,
707 N.W.2d 328, 331 (Iowa 2005). Summary judgment is appropriate when the
pleadings, depositions, answers to interrogatories, admissions on file, and
affidavits show there is no genuine issue of material fact, and the moving party is
entitled to a judgment as a matter of law. Iowa R. Civ. P. 1.981(3); Grinnell Mut.
Reins. Co. v. Jungling, 654 N.W.2d 530, 535 (Iowa 2002). A fact question arises
if reasonable minds can differ on how the issue should be resolved. Grinnell
Mut. Reins., 654 N.W.2d at 535. No fact question arises if the only conflict
concerns legal consequences flowing from undisputed facts. Id.
III.
MERITS.
“The Due Process Clause of the Fourteenth Amendment to the federal
constitution limits the power of a state to assert personal jurisdiction over a
nonresident defendant to a lawsuit.” Ross v. First Sav. Bank, 675 N.W.2d 812,
815 (Iowa 2004). “‘The personal jurisdiction requirement recognizes and protects
an individual liberty interest.’” EFCO Corp. v. Norman Highway Constructors,
Inc., 606 N.W.2d 297, 299 (Iowa 2000) (quoting Insurance Corp. of Ireland, Ltd.
v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702-03, 102 S. Ct. 2099,
2104-05, 72 L. Ed. 2d 492, 501-02 (1982)).
“‘Because the requirement of
personal jurisdiction represents . . . an individual right,’” it can be waived. Id.
(quoting Insurance Corp. of Ireland, 456 U.S. at 702-03, 102 S. Ct. at 2104-05,
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72 L. Ed. 2d at 501-02).
Thus, personal jurisdiction can be established by
consent. Id. (noting parties to a contract may agree in advance to submit to the
jurisdiction of a given court); see also Joseph L. Wilmotte & Co. v. Rosenman
Bros., 258 N.W.2d 317, 329 (Iowa 1977); Oakes v. Oakes, 255 Iowa 1315, 1318,
125 N.W.2d 835, 838 (1964). Forum selection clauses can constitute sufficient
consent by a nonresident defendant to the exercise of personal jurisdiction by a
foreign court. EFCO, 606 N.W.2d at 299.
Forum selection clauses are “prima facie valid and should be enforced
unless enforcement is shown by the resisting party to be ‘unreasonable’ under
the circumstances.” M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.
Ct. 1907, 1913, 32 L. Ed. 2d 513, 520 (1972) (footnote omitted). The rental
agreements at issue in this matter contained forum selection clauses. Therefore,
Liberty Bank has sustained its initial burden of establishing a prima facie showing
of personal jurisdiction. See OmniLingua, Inc. v. Great Golf Resorts of World,
Inc., 500 N.W.2d 721, 723 (Iowa Ct. App. 1993) (stating plaintiff has the burden
to establish the requisite jurisdiction).
When plaintiff makes a prima facie
showing of personal jurisdiction, the burden shifts to the defendant to produce
evidence to rebut or overcome it. Id.
A forum selection clause “should control absent a strong showing that it
should be set aside.” M/S Bremen, 407 U.S. at 15, 92 S. Ct. at 1916, 32 L. Ed.
2d at 523.
A choice of forum made in an “arm’s-length negotiation by
experienced and sophisticated businessmen” should be honored by the parties
and enforced by the courts “absent some compelling and countervailing reason.”
Id. at 12, 92 S. Ct. at 1914, 32 L. Ed. 2d at 521. In order for the forum selection
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clause to be unenforceable, the renters must establish that “enforcement would
be unreasonable and unjust” or that the clause is “invalid for such reasons as
fraud or overreaching.” 2 Id. at 15, 92 S. Ct. at 1916, 32 L. Ed. 2d at 523. It is
“incumbent on the party seeking to escape his contract to show that trial in the
contractual forum will be so gravely difficult and inconvenient that he will for all
practical purposes be deprived of his day in court.” Id. at 18, 92 S. Ct. at 1917,
32 L. Ed. 2d at 525. The renters argue that enforcement of the forum selection
clause in the rental agreements is unreasonable because the clause is indefinite
and open-ended, and thus fundamentally unfair.
In support of their argument that the forum selection clause is
unreasonable, the renters argue it was not foreseeable at the time the rental
agreements were executed that they would be haled into court in Iowa. They
urge they did not have “notice that NorVergence intended to assign the contracts
immediately following their execution.” We disagree.
The agreements contain the following provision regarding assignment in
bold type: “ASSIGNMENT: . . . We may sell, assign, or transfer all or any part of
this Rental and/or the Equipment without notifying you.” Ed Garcia, on behalf of
Best Litho, and Les M. McCoy, on behalf of DesignPoint, each executed a
personal guaranty provision, which states in capital letters: “The same state law
as the rental will govern this guaranty. You agree to jurisdiction and venue as
stated in the paragraph titled Applicable Law of the rental.” Furthermore, the
following provision appears directly above the renters’ signatures on the front of
the rental agreements: “You agree to all the terms and conditions shown above
2
The renters do not claim the forum selection clause is invalid for reasons such as fraud
or overreaching.
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and the reverse side of this Rental. . . .” Finally, the renters each signed a
separate Delivery and Acceptance Certificate indicating they reviewed and
understood all of the terms and conditions contained in the rental agreements.
Based on the foregoing contractual provisions, we find the rental agreements
provided the renters with ample notice that the agreements could be assigned.
See Jospeh L. Wilmotte, 258 N.W.2d at 323 (“[I]f a party to a contract . . . fails to
read the contract he cannot thereafter be heard to say that he was ignorant of its
terms and conditions for the purpose of relieving himself from its obligation.”
(citation omitted)). Because the forum selection clause also draws attention to
the assignability of the rental agreement, it is reasonable to infer that the renters
could have anticipated litigating in Iowa or other states.
The renters further argue the forum selection clause is unreasonable and
a violation of public policy because it does not designate a particular forum. In
EFCO, 606 N.W.2d at 299, our supreme court approved and enforced the
following forum selection clause:
Any action in regard to this agreement or arising out of its terms
and conditions may be instituted and litigated in the Iowa District
Court for Polk County, Iowa. Customer consents to the jurisdiction
of such court and agrees that service of process as provided by the
statutes and rules of procedure of Iowa . . . shall be sufficient.
The renters assert the forum selection clause in their rental agreements is
defective because, unlike the clause in EFCO, it does not name the exact state
where suit may be brought.
The “Applicable Law” provision in the rental agreements provides that the
agreement will be “governed by . . . the laws of the State in which . . . assignee’s
principal offices are located” and “all legal actions relating to this Lease shall be
8
venued exclusively in a state or federal court located within that State. . . .” The
supreme court’s approval of the forum selection clause in EFCO was not
dependent upon the fact that the clause designated a specific state. See id. at
299. Moreover, we find the forum selection clause does designate the state of
suit unequivocally: it is the state where the principal offices of NorVergence are
located or, if the contract has been assigned, the state where the principal offices
of the assignee are located. Thus, the renters consented to jurisdiction in New
Jersey, the home state of NorVergence, or to jurisdiction in the assignee’s home
state.
The renters urge “good policy dictates” that the forum selection clause
name the state in which the suit must be brought. The renters rely on Justice
Black’s dissent in National Equipment Rental, Ltd. v. Szukhent, 375 U.S. 311,
328-29, 84 S. Ct. 411, 421, 11 L. Ed. 2d 354, 365 (1964), in predicting that
enforcement of this forum selection clause will result in the proliferation of
clauses that are “even more broad and vague and influence companies to take
even greater advantage of unsuspecting customers.”
We first note that the
renters are not “unsuspecting customers” like the Michigan farmers in National
Equipment Rental. National Equip. Rental, 375 U.S. at 327, 84 S. Ct. at 420, 11
L. Ed. 2d at 364. There is nothing present in the record that would indicate the
renters are not experienced and sophisticated business people that entered into
an arms-length transaction. See M/S Bremen, 407 U.S. at 12, 92 S. Ct. at 1914,
32 L. Ed. 2d at 521 (finding a choice of forum made in an “arm’s-length
negotiation by experienced and sophisticated businessmen” is enforceable); see
also Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 593-95, 111 S. Ct. 1522,
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1527-28, 113 L. Ed. 2d 622, 632-33 (1991) (upholding a forum selection clause
in a form passage contract ticket even where the purchasers were not
sophisticated business persons that had negotiated the terms of the contract).
Furthermore, following National Equipment Rental, the Supreme Court in
M/S Bremen, 407 U.S. at 10, 92 S. Ct. at 1913, 32 L. Ed. 2d at 520, adopted a
“more hospitable attitude toward” forum selection clauses by approving such
clauses as prima facie valid. The Supreme Court rejected the traditional hostility
toward forum selection clauses, recognizing that “[t]he barrier of distance that
once tended to confine a business concern to a modest territory no longer does
so.” M/S Bremen, 407 U.S. at 8, 92 S. Ct. at 1912, 32 L. Ed. 2d at 519. Thus,
the “expansion of American business and industry will hardly be encouraged if,
notwithstanding solemn contracts, we insist on a parochial concept” of
discouraging forum selection clauses. Id. at 9, 92 S. Ct. at 1912, 32 L. Ed. 2d at
519. “If assignors have to compensate their assignees for having to litigate in an
inconvenient forum, they will have to charge a higher price to their customers . . .
.” IFC Credit Corp. v. Aliano Bros. Gen. Contractors, Inc., 437 F.3d 606, 613 (7th
Cir. 2006). We likewise conclude public policy supports the enforcement of the
forum selection clause to allow for the marketability of rental agreements such as
these in the leasing industry. See M/S Bremen, 407 U.S. at 14, 92 S. Ct. at
1915, 32 L. Ed. 2d at 523 (“[I]t would be unrealistic to think that the parties did
not conduct their negotiations, including fixing the monetary terms, with the
consequences of the forum clause figuring prominently in their calculations.”);
Carnival Cruise Lines, 499 U.S. at 594, 111 S. Ct. at 1527, 113 L. Ed. 2d at 632
(“[I]t stands to reason that passengers who purchase tickets containing a forum
10
clause . . . benefit in the form of reduced fares reflecting the savings that the
cruise line enjoys by limiting the fora in which it may be sued.”).
Other state and federal courts have reached the same conclusion
regarding the enforceability of similar forum selection clauses. See, e.g., IFC
Credit Corp., 437 F.3d at 611-12 (concluding the identical NorVergence forum
selection clause is enforceable absent a showing of fraud and rejecting lessee’s
argument that to be enforceable the clause must name the state in which the suit
is to be brought); Danka Funding, L.L.C. v. Page, Scrantom, Sprouse, Tucker &
Ford, P.C., 21 F.Supp.2d 465, 472 (D.N.J. 1998) (enforcing forum selection
clause providing for jurisdiction in the state where the assignee’s principal place
of business is located). But see Central Ohio Graphics, Inc. v. Alco Capital
Resource, Inc., 472 S.E.2d 2, 3 (Ga. Ct. App. 1996) (holding a forum selection
clause authorizing the lessor to pursue “any action under this agreement in any
court of competent jurisdiction” unenforceable due to its broadness and lack of
specificity); Preferred Capital, Inc. v. Power Eng’g Group, Inc., 860 N.E.2d 741,
746 (Ohio 2007) (holding that “when one party to a contract containing a floating
forum selection clause possesses undisclosed information of its intent” to
immediately assign its interest, the forum selection clause is unreasonable and
against public policy).
We find the reasoning of the cases enforcing the forum
selection clauses more persuasive than the reasoning of the cases invalidating
the clauses.
IV.
CONCLUSION.
In conclusion, we find the renters have failed to sustain their heavy burden
of establishing that the forum selection clause is fundamentally unfair and
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“enforcement would be unreasonable and unjust.” M/S Bremen, 407 U.S. at 15,
92 S. Ct. at 1916, 32 L. Ed. 2d at 523. We therefore conclude the district court
did not err in denying the renters’ motions for summary judgment. 3
We
accordingly affirm the judgments of the district court denying the motions for
summary judgment and remand for further proceedings.
AFFIRMED AND REMANDED FOR FURTHER PROCEEDINGS.
3
We need not and do not engage in a minimum contacts analysis. See EFCO, 606
N.W.2d at 299 (holding the minimum contacts analysis does not apply where the “basis
for the district court’s assumption of in personam jurisdiction” is consent). We also need
not and do not reach Liberty Bank’s argument that the renters waived any defense of
lack of personal jurisdiction.
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