United States District Court, D. South Dakota, Southern Division
For Quality Wood Designs, Inc., Plaintiff: James E. McMahon, Lisa M. Prostrollo, LEAD ATTORNEYS, Murphy Goldammer & Prendergast, LLP, Sioux Falls, SD.
For Ex-Factory, Inc., Defendant, Cross Defendant: Justin G. Smith, LEAD ATTORNEY, Blayne Hagen, Woods, Fuller, Shultz & Smith, PC, Sioux Falls, SD.
For Lasercare, Inc., Defendant, Cross Claimant: Pamela R. Bollweg, LEAD ATTORNEY, Shannon Falon, Johnson, Heidepriem & Abdallah, LLP, Sioux Falls, SD.
OPINION AND ORDER CONCERNING MOTION TO DISMISS
ROBERTO A. LANGE, UNITED STATES DISTRICT JUDGE.
The motions to dismiss in this case present a difficult legal issue, as if a civil procedure professor and a Uniform Commercial Code professor conspired on a law school exam question, regarding whether some or all of the claims in this case arising out of the sale of a good must be litigated in North Carolina. The facts that relate to the legal issue framed are not in dispute, although other facts and circumstances certainly are.
I. Facts Pertinent to Motions to Dismiss
Plaintiff Quality Wood Designs, Inc. (Quality Wood) is a South Dakota corporation with its principal place of business in Mitchell, South Dakota. Doc. 1 at ¶ 1. Quality Wood specializes in the manufacture and sale of office and store fixtures, partitions, and shelving. Doc. 1 at ¶ 2.
Defendant Ex-Factory, Inc. (Ex-Factory) is a North Carolina corporation with its principal place of business in Charlotte, North Carolina. Doc. 1 at ¶ 3; Doc. 34 at ¶ 1. Ex-Factory is an importer and dealer selling new and used machinery, including new and used woodworking machinery and industrial lasers, among other things. Doc. 1 at ¶ 4; Doc. 7 at ¶ 3; Doc. 34 at ¶ 3. Quality Wood and Ex-Factory had engaged in a few transactions prior to the one at issue between them in this case. Doc. 21.
Defendant Lasercare, Inc. (Lasercare) is incorporated outside the state of South Dakota and appears to have its principal place of business in South Carolina. Doc. 1 at ¶ 5. Lasercare provides maintenance, technical support, installation services, and reconditioning of industrial lasers, including reselling industrial lasers that have been refurbished or modified. Doc. 1 at ¶ 6; Doc. 7 at ¶ ¶ 7-8. Lasercare had been involved in a few transactions with Ex-Factory in the past, but had never dealt directly with Quality Wood before the transactions at issue here.
Quality Wood invokes diversity jurisdiction under 28 U.S.C. § 1332, because the parties have diversity of citizenship and because the amount in controversy exceeds $75,000. Doc. 1 at ¶ 7. Quality Wood has venued the case in the District of South Dakota, because Quality Wood is located here and a substantial portion of the conduct alleged in the Complaint occurred in South Dakota. Doc. 1 at ¶ ¶ 1, 8.
Quality Wood historically has paid an outside company to cut metal and aluminum used in its manufacturing of office fixtures, partitions, and shelving. Doc. 1 at ¶ 9. Quality Wood desired to purchase an industrial laser to do that work itself. Doc. 1 at ¶ 10. Quality Wood, through its operation manager Kelly Goldhammer, contacted Alan Schultz of Ex-Factory on or about October 16, 2011, to inquire about purchasing a used industrial laser. Doc. 1 at ¶ 11; Doc. 7 at ¶ ¶ 4-5; Doc. 11 at ¶ ¶ 2, 5. Quality Wood had no experience with industrial lasers, informed Ex-Factory of its inexperience with lasers, and described to Ex-Factory what Quality Wood needed such a laser to do. Doc. 11 at ¶ ¶ 7-9; Doc. 12 at ¶ ¶ 8-9. Discussions took place between Quality Wood's representative Goldhammer and Ex-Factory's representative Schultz in November of 2011 concerning the possible purchase of a TRUMPF L3030 CNC laser (the Laser), which was at the Lasercare facility in Clover, South Carolina. Doc. 7 at ¶ ¶ 5-6, 11-13; Doc. 11 at ¶ ¶ 11-12. Ex-Factory separately communicated with Lasercare and its affiliated company Kazal L.L.C. (Kazal) about Ex-Factory purchasing that Laser.
On November 21, 2011, authorized representatives of Quality Wood and of Ex-Factory entered into an oral agreement under which Quality Wood would buy the Laser from Ex-Factory by paying Ex-Factory $249,000, plus $7,950 shipping. Doc. 7 at ¶ 14; Doc. 11 at ¶ ¶ 14-15; Doc. 12 at ¶ ¶ 12-13. The terms of the oral agreement between Quality Wood and Ex-Factory included a right for Quality Wood to rescind the agreement if it was not satisfied with the Laser after having viewed it in person. Doc. 11 at ¶ 15; Doc. 12 at ¶ 13. Ex-Factory did not issue a quote with any terms and conditions; Quality Wood did not issue a purchase order with any terms and conditions. The
parties reached an oral agreement based on rather skeletal terms on November 21, 2011. Doc. 7 at ¶ 14; Doc. 11 at ¶ ¶ 14-15; Doc. 12 at ¶ 13. These terms were limited to identification of the type and capacity of the Laser, a price with shipping and payment terms, and the right of Quality Wood to rescind the agreement if it was not satisfied with the Laser upon viewing it. See Doc. 7 at ¶ ¶ 11, 14; Doc. 11 at ¶ ¶ 14-16; Doc. 12 at ¶ ¶ 12-13.
On November 22, 2011, Ex-Factory mailed to Mike Honermann, the president of Quality Wood, an invoice for the Laser. Doc. 7 at ¶ ¶ 15-16; Doc. 11 at ¶ 20; Doc. 12 at ¶ ¶ 17-18. The face of the invoice contained a " JURISDICTION & VENUE" provision stating:
Jurisdiction & venue for actions arising out of this transaction shall be Mecklenburg County, North Carolina regardless of the Parties' place of business or the equipment's shipping point.
Doc. 7-1 at 5. The invoice also stated that the sale was subject to " Standard Terms & Conditions." Doc. 7-1 at 5. The accompanying " Terms & Conditions of Sale" stated in part: " The Parties irrevocably submit to the jurisdiction of the Mecklenburg County, North Carolina [sic] for the purpose of any suit, action, or other proceeding arising out of this Agreement." Doc. 7-1 at 6. This Opinion and Order will refer to the consent-to-jurisdiction and venue-selection language of this invoice and Terms & Conditions as " forum-selection terms." Ex-Factory and Quality Wood had not discussed the forum-selection terms previously and did not subsequently discuss these terms. Doc. 11 at ¶ ¶ 21-23; Doc. 12 at ¶ ¶ 20-21. Honermann received but did not review or object to the invoice and attached Terms & Conditions of Sale. Doc. 12 at ¶ 18. Quality Wood contests that forum-selection terms are part of the contract, so its course of dealing with Ex-Factory and existence or non-existence of similar contract terms becomes relevant.
Quality Wood and Ex-Factory had done some business together in the past. Doc. 21. In a transaction in 2004, Quality Wood bought an edge bander from Ex-Factory. Doc. 21 at ¶ 7. At that time Ex-Factory was not using the forum-selection terms in its invoice or Terms & Conditions. See Doc. 21 at ¶ 9; Doc. 21-1. Quality Wood in 2009 sold the edge bander through Ex-Factory, again without any forum-selection terms. Doc. 21 at ¶ 8; Doc. 21-2. In May of 2011, Quality Wood bought a DOUCET carrier from Ex-Factory and received the invoice and Terms & Conditions of Sale in the same form and language as with the later purchase of the Laser. Doc. 21 at ¶ 11; Doc. 21-4. After delivery of the DOUCET carrier, Quality Wood was dissatisfied with the product and Ex-Factory took back the DOUCET carrier. Doc. 21 at ¶ 12. In June of 2011, Quality Wood bought a clamp carrier from Ex-Factory and received the same sort of invoice used for the Laser with terms and conditions containing the forum-selection terms choosing venue for any lawsuit in North Carolina. Doc. 21 at ¶ ¶ 15-17; Doc. 21-5. On none of the occasions did the parties discuss those forum-selection terms, did Quality Wood object to those terms, or did the parties litigate any matter. See Doc. 21.
On November 30, 2011, Honermann and Goldhammer visited Lasercare's facility in South Carolina and observed the Laser. Doc. 7 at ¶ ¶ 22-24; Doc. 11 at ¶ ¶ 24-28; Doc. 12 at ¶ ¶ 24-26.
The Laser was not ready to cut aluminum or steel, the material Quality Wood desired to cut, because a resonator had not yet been installed on the Laser. Doc. 11 at ¶ 29; Doc. 12 at ¶ 28. According to Quality Wood's Complaint, representatives of both Ex-Factory and Lasercare negligently and fraudulently made promises and misrepresentations concerning the functioning of the Laser, which induced Quality Wood at that point not to rescind its oral purchase agreement and instead to proceed with the purchase of the Laser. Doc. 1 at ¶ ¶ 21-23; Doc. 11 at ¶ ¶ 29-31; Doc. 12 at ¶ ¶ 28-30. Quality Wood then made an initial payment of $124,000 to Ex-Factory toward purchase of the Laser. Doc. 11 at ¶ ¶ 24-28, 32; Doc. 12 at ¶ ¶ 24-26, 31.
Ex-Factory meanwhile had negotiated with Lasercare to buy the Laser. Ex-Factory issued a purchase order on November 22, 2011, at Lasercare's direction to Lasercare's affiliate, Kazal, to confirm purchase of the Laser. Doc. 34-3. Neither Lasercare nor Kazal had sent a quote attempting to dictate terms of the purchase and sale of the Laser to Ex-Factory. In the purchase order, Ex-Factory confirmed purchase of the Laser for $225,000 and included a provision that " SELLER and PURCHASER agree that jurisdiction and venue for any action arising out of this transaction shall be Mecklenburg County, North Carolina regardless of the Parties' place of business or the equipment's shipping point." Doc. 34-1. Lasercare's affiliate Kazal then responded with an invoice dictating no different terms and requiring payment of $112,500 as a deposit with the order and the remaining $112,500 prior to shipment. Doc. 34-4. Ex-Factory had done previous business with Lasercare/Kazal. Doc. 34 at ¶ ¶ 7-39. In one prior transaction, Lasercare/Kazal reviewed the language of an Ex-Factory purchase order that contained venue-selection and consent-to-jurisdiction clauses specifying North Carolina as the exclusive forum, objected to certain parts of the terms and conditions, and did not object to those forum-selection terms. Doc. 34 at ¶ ¶ 10-12; Doc. 34-2. Lasercare/Kazal did not object to the terms and conditions in the Ex-Factory purchase order for the Laser. Doc. 34 at ¶ 17; Doc. 34-5.
Goldhammer of Quality Wood later asked Ex-Factory for wiring instructions for the second and final payment for the Laser. Doc. 11 at ¶ 33; Doc. 12 at ¶ 32. On December 2, 2011, Schultz of Ex-Factory sent by email to Goldhammer wire transfer instructions to which Ex-Factory attached the invoice and Terms & Conditions of Sale containing the forum-selection terms. Doc. 7 at ¶ 18; Doc. 11 at ¶ 34; Doc. 12 at ¶ ¶ 33-34. Goldhammer personally had not received that material previously. Doc. 11 at ¶ 35. Quality Wood did not object to any language of the invoice or Terms & Conditions of Sale, and Goldhammer has no recollection of reviewing these documents. Doc. 11 at ¶ ¶ 35-39; Doc. 1 at ¶ ¶ 19-23.
Lasercare and Quality Wood entered into a separate installation agreement under which Lasercare assembled and configured the Laser at Quality Wood's business location in Mitchell, South Dakota. Doc. 1 at ¶ ¶ 24-26. The Complaint alleges that Lasercare encountered difficulties in getting the Laser operational in South Dakota and Quality Wood experienced numerous issues with the operation of the Laser at its facility. Doc. 1 at ¶ ¶ 27-34. According to the Complaint, on or about
March 16, 2012, Lasercare refused to perform any additional repairs on the Laser until Quality Wood entered into a services agreement with Lasercare, which Quality Wood then did because it felt forced to do so. Doc. 1 at ¶ ¶ 35-37. Quality Wood alleges that the Laser continued to malfunction thereafter. Doc. 1 at ¶ ¶ 38-39. Quality Wood later learned that the Laser's manufacturer would honor no warranty because of numerous modifications that Lasercare had made to the Laser of which Quality Wood allegedly was unaware at the time of its purchase. Doc. 1 at ¶ ¶ 38-48. Quality Wood alleges that the Laser turned out not to have the capacities to function as represented by Ex-Factory and Lasercare. Doc. 1 at ¶ ¶ 41-47; Doc. 11 at ¶ ¶ 43-46; Doc. 12 at ¶ ¶ 38-40. Lasercare's Complaint contains nineteen causes of action against Ex-Factory and Lasercare, some of which are contract based and others of which are tort based. Doc. 1.
A. Choice of Law
This is a diversity jurisdiction case brought under 28 U.S.C. § 1332, where no party is challenging subject matter or personal jurisdiction of this Court. Rather, Ex-Factory is seeking dismissal, or in the alternative transfer of the case to the United States District Court for the Western District of North Carolina, based on what it contends to be valid forum-selection clauses in its contracts to buy the Laser from Lasercare and to sell the Laser to Quality Wood. A federal court in a diversity jurisdiction case ordinarily must follow the choice-of-law rules of the state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); see also Cicle v. Chase Bank USA, 583 F.3d 549, 553 (8th Cir. 2009). When, however, there is a valid forum-selection clause and a diversity action is filed in a different forum, then the original venue's choice-of-law rules do not apply. A. Marine Constr. Co., Inc. v. U.S. Dist. Court for W. Dist. of Tex., 134 S.Ct. 568, 582-83, 187 L.Ed.2d 487 (2013).
In this case, the parties dispute whether there are valid forum-selection provisions. Thus, to determine whether the forum-selection provisions are enforceable, this Court initially would look to South Dakota choice-of-law rules. See Bell, Inc. v. IFS Indus., Inc., 742 F.Supp.2d 1049, 1052 (D.S.D. 2010). Under South Dakota law, " [a] contract is to be interpreted according to the law and usage of the place where it is to be performed or, if it does not indicate a place of performance, according to the law and usage of the place where it is made." O'Neill Farms, Inc. v. Reinert, 2010 SD 25, 780 N.W.2d 55, 59 (S.D. 2010) (quoting S.D. Codified Law (SDCL) § 53-1-4). " The test of the place of a contract is the place where the last act is done by either of the parties which is necessary to complete the contract and give it validity." Id. (quoting Briggs v. United Servs. Life Ins. Co., 80 S.D. 26, 117 N.W.2d 804, 807 (S.D. 1962)). The Supreme Court of South Dakota has recognized that parties may agree to be bound by the law of a particular state. See Butler Mach. Co. v. Morris Constr. Co., 2004 SD 81, 682 N.W.2d 773, 776 (S.D. 2004) (citing Dunes Hospitality, LLC v. Country Kitchen Int'l. Inc., 2001 SD 36, 623 N.W.2d 484, 488 (S.D. 2001)). However, South Dakota courts do not give effect to laws of other jurisdictions when those laws are contrary to the public policy of South Dakota. Bell, Inc., 742 F.Supp.2d at 1052 (citing Butler Mach. Co., 682 N.W.2d at 776).
It is less than entirely clear where the " last act . . . done by either of the parties which is necessary ...