United States District Court, D. South Dakota, Southern Division
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION TO DETERMINE GOVERNING LAW AND PLAINTIFF’S MOTION TO AMEND COMPLAINT
KAREN E. SCHREIER UNITED STATES DISTRICT JUDGE.
Plaintiff, Black Hills Truck & Trailer, Inc., brings this action against defendant, MAC Trailer Manufacturing, Inc., seeking damages for alleged violations of the parties’ franchise agreement, state law, and federal law. MAC moves this court for an order stating Ohio law will govern the dispute, and Black Hills moves for an order granting it leave to amend its complaint. This court grants in part and denies in part both motions.
The undisputed facts are as follows:
Black Hills Truck & Trailer, Inc., is a corporation organized and operating in South Dakota. Black Hills entered into a distributor selling agreement with MAC, an Ohio corporation. The agreement gave Black Hills the right to sell commercial flatbed and dump truck trailers in select counties in South Dakota and Nebraska. Docket 1-1 at 14, 18-19. The agreement also stated that “[t]his Agreement and performance hereunder shall be governed by, and construed in accordance with, as to all matters . . . the laws of the State of Ohio, U.S.A.” Docket 1-1 at 28.
About nine months after the parties signed the agreement, MAC sent Black Hills a modified distributor selling agreement and a letter outlining the changes. Docket 1-1 at 25. The new agreement put restrictions on Black Hills’ marketing, sales, and repair work done outside the Rapid City area. Docket 1-1 at 25-26. Black Hills never consented to the proposed changes. Docket 1-1 at 5; Docket 15 at 1. MAC then sent a letter to Black Hills stating MAC would not accept any orders from Black Hills until the new agreement was signed. Docket 1-1 at 35. Black Hills responded by letter stating it did not agree to the proposed changes. The parties’ relationship ended in 2013 when MAC failed to renew its sales agreement with Black Hills.
Black Hills filed its complaint in South Dakota state court asserting six causes of action: violation of SDCL 32-6B-45, breach of contract, breach of good faith and fair dealing, preliminary injunction, deceit, restraint of trade, and violation of Robinson-Patman Act. MAC removed this case to federal court on October 11, 2013. MAC moved to dismiss the case, asserting South Dakota was an improper venue based on a forum selection clause within the parties’ agreement. This court denied MAC’s motion. MAC now moves for an order stating Ohio law will govern the parties’ dispute, and Black Hills moves for leave to amend its complaint.
I. MOTION TO DETERMINE GOVERNING LAW LEGAL STANDARD
The parties agree that when a federal question case involves the exercise of supplemental jurisdiction over state-law claims, the federal court applies the forum state’s choice of law rules. Docket 32 at 3; Docket 34 at 4. See also Paulsen v. CNF Inc., 559 F.3d 1061, 1080 (9th Cir. 2009) (citation omitted); Mastro v. Potomac Elec. Power Co., 447 F.3d 843, 857 (D.C. Cir. 2006) (citation omitted). Because this action was filed in South Dakota, the court will apply South Dakota choice of law rules.
The South Dakota Supreme Court has “generally recognized that parties may agree to be bound by the law of a particular state.” Dunes Hosp., L.L.C. v. Country Kitchen Int’l, Inc., 623 N.W.2d 484, 488 (S.D. 2001). “In South Dakota, a stipulation that provides the governing law is permitted, ” but such “agreements are subject to limitation and invalidation by the overriding public policy of the forum state.” Id. (citing and quoting State ex rel. Meierhenry v. Spiegel, Inc., 277 N.W.2d 298, 299 (S.D. 1979)). The courts will not “give effect to laws of other jurisdictions if [the laws] are contrary to the public policy of South Dakota.” Butler Mach. Co. v. Morris Constr. Co., 682 N.W.2d 773, 776-77 (S.D. 2004) (citing Dunes, 623 N.W.2d at 488)). In South Dakota, “[t]he primary sources for declarations of . . . public policy . . . are the constitution, statutory law, and judicial decisions.” Spiegel, 277 N.W.2d at 300. “[A]ny contract provision which is contrary to an express statute or to the policy of an express statute is unlawful.” Id. (citing SDCL 53-9-3).
The South Dakota Supreme Court looks to provisions of the Restatement (Second) of Conflict of Laws when there is a dispute about which state’s law governs. Dunes, 623 N.W.2d at 488. Section 187 of the Restatement explains a choice of law clause in a contract will be enforced unless
application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.
§ 187(2) Restatement (Second) of Conflict of Laws. Thus, the issues before the court on MAC’s motion are (1) whether application of Ohio law is contrary to the public policy of South Dakota; (2) whether South Dakota has a materially greater interest than Ohio in this litigation; and (3) whether South Dakota law would govern this dispute if the parties had not agreed to a choice of law ...