PCM Recovery Group, Inc. v Pierce

[*1] PCM Recovery Group, Inc. v Pierce 2013 NY Slip Op 52309(U) Decided on December 6, 2013 Supreme Court, Nassau County Destefano, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on December 6, 2013
Supreme Court, Nassau County

PCM Recovery Group, Inc., AS THE ASSIGNEE OF THE RIGHTS OF PCM HOLDING GROUP, LLC AND ITS MEMBERS, Plaintiff,

against

Willie D. Pierce, EDITH F. PIERCE, and PIERCE CONSTRUCTION AND MAINTENANCE COMPANY, INC., Defendants.



004182-13



Plaintiff's Attorney:

Wisselman, Harounian & Associates, P.C.

Randall K. Malone, Esq.

1010 Northern Blvd.

Suite 300

Great Neck, NY 11021

(516) 773-8300

Defendant's Attorney:

Farrell Fritz, P.C.

Kevin Mulry, Esq.

1320 RXR Plaza

Uniondale, NY 11556

(516) 227-0620

Vito M. Destefano, J.

The following papers and the attachments and exhibits thereto have been read on this [*2]motion:

Notice of Motion1

Memorandum of Law in Support2

Affirmation in Opposition3

Reply Memorandum of Law4

In an action for rescission and to recover damages for fraud and breach of fiduciary duty, the Defendants' motion for an order pursuant to CPLR 3211(a)(1) is denied.

Factual and Procedural Background

Pursuant to an "Agreement for Purchase of Part of Common Stock of Willie D. Pierce and Edith F. Pierce in Pierce Construction & Maintenance Company, Inc. and Real Property on Which Corporate Facilities are Located" (the "2010 Purchase Agreement"), PCM Holding Group, LLC [FN1] purchased approximately 67% of the stock of Defendant Pierce Construction and Maintenance Company, Inc. ("Company") together with 100% of the real estate upon which the Company is located from Defendants Willie D. Pierce ("Pierce") and Edith F. Pierce for a purchase price of $5 million dollars. PCM secured their principal financing from Regions Bank and owner financing from Willie and Edith Pierce.

The 2010 Purchase Agreement contained the following choice of law provision:

Agreement shall be governed and interpreted under the laws of the State of Mississippi with jurisdiction and venue in Forrest County, Mississippi, where the property is located. In the event that any dispute arises between the parties regarding this Agreement, the parties may at their election attempt resolution by mediation or arbitration with the American Arbitration Association; but nothing contained therein shall limit the right of any party to adjudicate any dispute relating to this Agreement in the Circuit or Chancery Courts of Forrest County, Mississippi (Ex. "B" to Motion at p 12).

After closing PCM discovered that prior to the closing, the Company experienced "material adverse changes" that resulted in a deteriorated financial condition that had not been disclosed to PCM. Being unable to secure additional lending from Regions Bank after the closing, in August 2010, PCM borrowed money from Pierce in order to allow the Company to continue operating. Pursuant to Pierce's loan to the Company, Pierce remained as the Company's President and Chief Executive Officer ("CEO") (Ex. "A" to Motion at ¶¶ 21-22).

According to the complaint, Pierce thereafter breached the Company's agreement it had [*3]with Regions Bank by opening another bank account with a competing bank and depositing the Company's proceeds in the new account. Regions Bank declared the Company in default and threatened to commence foreclosure proceedings (Ex. "A" to Motion at ¶ 22).

"[T]o prevent commencement of foreclosure proceedings and complete loss" of PCM's investment, on April 26, 2011, Robert Manners, one of the members of PCM, executed another agreement with the Defendants to transfer all of the Company's assets back to the Defendants (Ex. "A" to Motion at ¶ 26). Specifically, pursuant to the agreement entitled "Acknowledgment of Default":

1.Purchasers acknowledge that they are in default of the loan at Regions Bank and the loan to Mr. and Mrs. Pierce and that they desire to reconvey the properties in lieu of foreclosure so that Mr. Pierce will have the opportunity to negotiate with Regions Bank and save the business.

2.In consideration of the reconveyance of all assets, Willie D. Pierce agrees to pay Robert M. Manners and/or his Purchasers the sum of Fifty Thousand and No/100 Dollars ($50,000.00) upon the execution of this Agreement and to pay the sum of Sixteen Thousand Five Hundred and No/100 Dollars ($16,500.00) per month for twelve (12) months, and to negotiate with Regions Bank with respect to arrangements for taking over the indebtedness.

3.Robert M. Manners and Providence Capital Partners One, L.P. and PCM Holding Group, LLC agree to execute a Stock Power returning all 1,172.50 shares of stock purchased from the Pierces to them and agree to instruct the Escrow Agent to deliver the Note in his possession and the Stock Certificates to Willie D. Pierce and Edith F. Pierce.

4.PCM Real Estate Holding Group, LLC agrees to join with Pierce Construction and Maintenance Company, Inc. in reconveying to Willie D. Pierce and wife, Edith F. Pierce, by Warranty Deed the real property which was conveyed to them.

* * *

7.Purchasers release the Pierces as Sellers of all responsibilities under the Agreement to Purchase dated April 9, 2010 (Ex. "C" to Motion).

On April 8, 2013, PCM commenced the instant action asserting causes of action for fraudulent inducement, breach of fiduciary duty, and rescission. In the first cause of action, PCM claims that Pierce misrepresented the Company's financial condition to induce PCM to purchase the assets of the Company (Ex. "A" to Motion at ¶¶ 29-33). With respect to the claim that Pierce breached his fiduciary duty owed to PCM, PCM asserts that Pierce "engaged in self-interested judgments, opening Company bank accounts with a competing bank in which he was the sole signor, in breach of the Company's lending agreements with Regions Bank, and putting the Company into default" (Ex. "A" to Motion at ¶ 40). The third [*4]cause of action seeks to rescind the Acknowledgment of Default on the ground that Manners did not have the authority to enter into such an agreement and make such a transfer and, thus, the transfer is null and void and of no force and effect (Ex. "A" to Motion at ¶¶ 26, 44, 48). The relief sought in the complaint includes:

An order rescinding the Acknowledgment of Default agreement dated April 26th, 2011;

A declaration that the transfer of the assets pursuant to the Acknowledgment of Default agreement dated April 26th, 2011 is null and void and of no force and effect and that PCM "has been and continues to be the true and lawful owner of the Assets as a matter of law";

Damages in an amount to be determined by this Court but expected to be approximately five million dollars;

Punitive damages in an amount to be determined by this Court but requested to be in the amount of approximately five million dollars;

The Defendants now move to dismiss the complaint pursuant to CPLR 3211(a)(1) based upon the forum selection clause contained in the 2010 Purchase Agreement which states that the governance and interpretation of the Agreement shall be in the venue and jurisdiction of Forrest County, Mississippi. According to the Defendants, the forum selection provision should be enforced and PCM's "claims against the Pierce Defendants should be dismissed in favor of Plaintiff bringing its claims in the forum dictated by the contract at issue - Mississippi" (Defendants' Memorandum of Law at p 1).

The Court's Determination

It is well settled that parties to a contract may "freely select a forum which will resolve any disputes over the interpretation or performance of the contract" (Brooke Group v JCH Syndicate 488, 87 NY2d 530, 534 [1996]). "A contractual forum selection clause is prima facie valid and enforceable unless it is shown by the challenging party to be unreasonable, unjust, in contravention of public policy, invalid due to fraud or overreaching, or it is shown that a trial in the selected forum would be so gravely difficult that the challenging party would, for all practical purposes, be deprived of its day in court" (Creative Mobile Technologies, LLC v Smart Modular Technologies, Inc., 97 AD3d 626 [2d Dept 2012]).

"As a term of the contract between the parties . . . a contractual forum selection clause is documentary evidence that may provide a proper basis for dismissal pursuant to CPLR 3211(a) (1)" (Lischinskaya v Carnival Corporation, 56 AD3d 116, 123 [2d Dept 2008], lv den 12 NY3d 716 [citations omitted]). The Defendants contend that the complaint should be dismissed because the 2010 "Purchase Agreement includes a valid and enforceable forum selection provision that gives the courts of Forrest County, Mississippi exclusive jurisdiction over any claims" (Defendants' Memorandum of Law at p 3).

Forum selection clauses may be either permissive or mandatory in nature (see Boss v American Express Financial Advisors, Inc., 6 NY3d 242 [2006]). Mandatory clauses provide that contracting parties both submit to exclusive jurisdiction in a particular forum while permissive clauses provide that contracting parties "shall" submit to jurisdiction in a particular forum but do not preclude litigation where jurisdiction is otherwise proper. In New York, mandatory clauses are prima facie valid (John Boutari & Sons, Wines and Spirits, S.A. v Attiki Importers & Distributors Inc., 22 F3d 51 [2d Cir 1994]; Fear & Fear, Inc. v N.I.I. Brokerage, L.L.C., 50 AD3d 185 [4th Dept 2008], and where parties have contracted for exclusive jurisdiction in a particular forum, it is the policy of the courts to enforce these provisions (Bernstein v Wysoki, 77 AD3d 241 [2d Dept 2010]). On the other hand, where contracting parties have agreed to a permissive forum selection clause, the general rule is that "[w]hen only jurisdiction is specified the clause will generally not be enforced without some further language indicating the parties' intent to make jurisdiction exclusive" (Fear & Fear, Inc. v N.I.I. Brokerage, LLC, 50 AD3d at 187, supra (internal quotations omitted).

Here, the parties' use of the language indicating that the Agreement "shall be governed and interpreted under the laws of the State of Mississippi with jurisdiction and venue in Forrest County, Mississippi" renders the provision mandatory only insofar as to the applicability of Mississippi law and permissive as to the choice of forum (see eg Regal Kitchens, Inc. v O'Connor & Taylor Condo. Constr., Inc., 894 So2d 288, 290-92 [Fla. Dist. Ct. App. 2005] [holding that a clause reciting that "[a]ny litigation concerning this contract shall be governed by the law of the State of Florida, with proper venue in Palm Beach County" was mandatory as to choice of law but permissive as to choice of forum because it "lack[ed] mandatory language or words of exclusivity to show that venue [was] proper only in Palm Beach County. . . . The language merely allow[ed] a party to file suit in Palm Beach County"]).

To illustrate the "problem" with the so-called choice of forum language, the court notes that the phrase "with jurisdiction and venue" could easily be modified by the addition (after "venue") of the words "proper" or "exclusively", which would, alternatively, achieve permissive and mandatory choice of forum selection clauses. Reading the phrase in this manner, therefore, demonstrates that in the absence of words of exclusivity, in regard to the choice of forum, the phrase as written must be permissive and not mandatory. The court again notes that the only mandatory language in the agreement ("shall") pertains to the choice of law and that nothing in the balance of the relevant clause reflects the parties' intent to exclusively confer jurisdiction in the courts of Forrest County, Mississippi (see Fear & Fear, Inc. v N.I.I. Brokerage, LLC, 50 AD3d 185, 187 [4th Dept 2008]).

Accordingly, it is hereby ordered that the Defendants' motion is denied.

This constitutes the decision and order of the court. [*5]

Dated: December 6, 2013

_____________________________

Hon. Vito M. DeStefano, J.S.C. Footnotes

Footnote 1: The Plaintiff, PCM Recovery Group, Inc. is the assignee of the rights of PCM Holding Group, LLC (PCM Recovery Group, Inc. and PCM Holding Group, LLC are collectively referred to as "PCM").