Lakeside Surfaces, Inc. v. Cambria Co., LLC

Citation: Not availableDocket: 20-1335

Court: Court of Appeals for the Sixth Circuit; October 15, 2021; Federal Appellate Court

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Lakeside Surfaces, Inc. (Plaintiff-Appellant), a Michigan-based stone countertop fabricator, entered into a series of agreements known as the Business Partner Agreements (BPA) with Cambria Company, LLC (Defendant-Appellee), a leading countertop manufacturer. The BPA included a forum-selection clause mandating that any legal disputes be resolved in Minnesota state court. Lakeside filed a lawsuit in a Michigan federal district court, violating this clause. Cambria moved to dismiss based on the forum-selection clause, and the district court granted this motion. Lakeside appealed, asserting the clause's unenforceability. The Sixth Circuit Court, led by Circuit Judge Helene N. White, agreed with Lakeside and reversed the district court's decision. The BPA outlined specific requirements for Lakeside to maintain its status as a "Lexus Partner," including sales quotas and infrastructure standards, along with a choice-of-law provision favoring Minnesota law.

Proceedings related to this Agreement and any claims or disputes must occur in the District Court of Le Sueur County, Minnesota, to which the undersigned consents and waives any objections regarding the venue or forum non conveniens. The undersigned agrees to the terms of additional agreements, including the Cambria Order Terms and Conditions, the Cambria Natural Quartz Lifetime Limited Warranty, and the Security Agreement, which are incorporated into this Agreement. This Agreement outlines the contractual terms governing all current and future transactions between Cambria and the undersigned.

Lakeside has exceeded its contractual obligations, increasing its sales of Cambria products from 86.6% of its inventory in 2015 to 98% in 2017, with significant investments in training, advertising, and facility improvements totaling over $7 million. Lakeside claims these actions were driven by Cambria’s demand for increased capacity and exclusivity in Michigan. Following the opening of a new fabrication facility in April 2017, Lakeside sought exclusivity during a meeting with Cambria's CEO. However, after learning of Lakeside's sales of a competitor's product, Cambria terminated their relationship in January 2018, alleging a breach of the Lexus Partner requirements without specifying the breach or allowing a cure.

Lakeside subsequently filed a lawsuit in the Western District of Michigan, alleging breach of contract, violations of the Michigan Franchise Investment Law, violations of the Uniform Commercial Code, and promissory estoppel. Cambria moved to dismiss the case based on the forum-selection clause.

Lakeside contended that a forum-selection clause in its franchise agreement was unenforceable under the precedent set in M/S Bremen v. Zapata Off-Shore Co. because it violated Michigan's public policy, specifically the Michigan Franchise Investment Law (MFIL), which renders such clauses void. Cambria countered that the choice-of-law provision in the agreement, which specified Minnesota law, made the MFIL irrelevant. Lakeside argued that this choice-of-law provision did not apply to its MFIL claims and was unenforceable under Michigan conflict-of-law principles. The district court ruled in favor of Cambria, doubting the applicability of Bremen's public-policy exception and concluding that the forum-selection clause did not violate public policy due to the enforceability of the choice-of-law provision. Consequently, the court dismissed the case based on the doctrine of forum non conveniens. Lakeside appealed, raising the issue of the enforceability of the forum-selection clause, which Bremen states should prevail unless there is a strong reason to set it aside. The appellate analysis will focus on whether the public-policy exception applies, while also clarifying that in cases with a valid forum-selection clause, the plaintiff’s choice of forum holds little weight, and the burden shifts to the plaintiff to demonstrate that public-interest factors justify not dismissing the case.

A valid and enforceable forum-selection clause necessitates a court's preliminary determination regarding its applicability, mandatory nature, validity, and enforceability before conducting a forum-non-conveniens analysis. The court must first resolve these questions, as established in Azima v. RAK Inv. Auth., which emphasizes that if the clause is enforceable, the modified analysis from Atlantic Marine applies, placing the burden on the plaintiff to demonstrate that public factors significantly oppose dismissal. In contrast, if any question is answered negatively, the traditional forum-non-conveniens analysis is employed.

The factors considered in the private-interest analysis include access to evidence, witness attendance issues, potential site visits, and practical trial considerations. Public-interest factors encompass court congestion, local interests, familiarity with governing law, conflict of laws concerns, and the burden of jury duty on citizens in unrelated forums. Different circuits have adopted this two-step approach, recognizing distinct standards of review: de novo for enforceability determinations and abuse of discretion for balancing forum-non-conveniens factors.

In this case, the dispute centers on the enforceability of the forum-selection clause, specifically regarding the Bremen public-policy exception, which states that such clauses may be unenforceable if they violate strong public policy in the jurisdiction where the case is filed. Lakeside argues that enforcing the clause contravenes Michigan's public policy, as the Michigan Franchise Investment Law (MFIL) invalidates out-of-state forum-selection clauses in franchise agreements.

Cambria contends that Bremen’s public policy exception is not applicable and that even if it were, the parties’ choice-of-law provision makes the Michigan Franchise Investment Law (MFIL) irrelevant. The district court raised the public policy issue on its own, despite Cambria not addressing it at lower levels. Cambria cites the 2009 case Wong, which established that federal courts in diversity cases should apply federal common law to determine the enforceability of forum-selection clauses. This decision was consistent with the majority of circuits at the time. The district court found that Lakeside’s allegations met the MFIL’s criteria for establishing a franchise relationship, and Cambria did not contest this finding in detail, only making a brief note that it did not concede the conclusion. For the purposes of this appeal, it is assumed that the Business Partnership Agreement (BPA) was a franchise agreement under the MFIL. 

Wong highlighted that the majority of circuits (Second, Third, Fifth, Eighth, Ninth, and Eleventh) favored federal common law for such inquiries, while the Seventh and Tenth circuits applied state law. The Fourth Circuit later aligned with the majority position. The court emphasized the need for uniformity among circuits to prevent inconsistent legal outcomes in diversity cases. It outlined several factors for evaluating the enforceability of a forum selection clause without mentioning public policy concerns. Cambria argues that after Wong, Bremen’s public policy exception should not factor into the enforceability assessment. Although Wong was the first to resolve the Erie question regarding the application of federal common law, prior cases had established relevant principles for enforceability without addressing the Erie issue due to the similarity in state and federal standards. In Shell v. R.W. Sturge, the court recognized that Bremen’s public policy factor was relevant when evaluating the enforceability of a forum-selection clause in a similar context.

Federal decisions and common-law principles were relied upon to resolve the appeal, with Bremen providing the relevant standard and its forum-policy exception. The enforcement of a forum selection clause is presumed valid unless the plaintiffs demonstrate that enforcement would be unreasonable, unjust, or invalid due to reasons like fraud or overreaching. Additionally, enforcement may be set aside if trial in the contractual forum would be excessively difficult, depriving the plaintiffs of their day in court, or if it contravenes a strong public policy of the forum state. The opinion also addressed plaintiffs' claims regarding Ohio’s public policy on registration and merit review, stating that plaintiffs must show this public policy outweighs the policies favoring the enforceability of forum-selection clauses. However, since British law did not conflict with Ohio’s securities laws, enforcing the forum clause did not violate Ohio’s public policy. 

Cambria contended that Bremen’s public-policy exception does not apply in diversity cases and argued that Bremen, being an admiralty case, is distinguishable. In contrast, Lakeside asserted that Bremen’s public-policy exception is relevant per Shell, a binding decision in the diversity context. The court agreed with Lakeside, noting that Bremen’s public-policy exception should be part of the enforceability analysis. This conclusion aligns with the majority stance among circuits, which reinforces the position that Bremen’s public-policy exception is applicable in such cases. Adopting Cambria's interpretation would create a conflict with established precedent and could isolate the Sixth Circuit from the majority view. Thus, Bremen’s public-policy exception is confirmed as part of the enforceability inquiry.

Lakeside seeks to challenge the enforceability of a forum-selection clause by invoking a strong public policy in Michigan, as outlined in the Michigan Franchise Investment Law (MFIL), which renders any clause requiring litigation outside Michigan "void and unenforceable" (MCL 445.1527(f)). The MFIL is recognized as a fundamental public policy by both federal and Michigan courts. Lakeside argues that enforcing the clause would violate this clear policy, which protects franchisees by prohibiting such clauses in franchise agreements.

The MFIL mandates that franchisors inform franchisees about provisions deemed void, providing recourse for franchisees if this notice is not given (MCL 445.1531(1)). This protective structure underscores the MFIL's prohibition on forum-selection clauses as a critical legislative intent to safeguard franchisees. Unlike Michigan's general preference for enforcing contractual forum-selection clauses, the MFIL represents a specific legislative choice to deviate from this norm in franchise contexts, minimizing concerns about broader implications for other types of agreements.

The conclusion drawn is that the MFIL's prohibition on forum-selection clauses constitutes a strong public policy in Michigan, and enforcing the clause in this case would clearly contravene that policy, aligning with precedents from other jurisdictions where similar statutes rendered forum-selection clauses unenforceable.

Cambria contends that the Michigan Franchise Investment Law (MFIL) prohibition on forum-selection clauses is inapplicable because the parties have selected Minnesota law to govern their dispute. It highlights Michigan’s public policy, which supports the enforcement of contractual forum-selection clauses outside the MFIL context. Cambria references the case of Banek, asserting that while the MFIL voids forum-selection clauses, it does not invalidate choice-of-law provisions, implying that the choice-of-law provision makes the MFIL’s anti-forum-selection policy irrelevant in this instance.

However, the Banek case is distinguished from the current situation. In Banek, a Michigan franchisee sued a Georgia franchisor, and the franchise agreement included a choice-of-law provision favoring Georgia law. The court upheld this provision, noting that the MFIL specifically prohibits forum-selection clauses but does not similarly restrict choice-of-law provisions. The reasoning was that the legislature intended to mandate litigation in Michigan but did not require Michigan law to govern every dispute.

The option for parties to select the governing law from another state may provide greater protection for franchisees and maintain Michigan's attractiveness to national franchisors. The court emphasized that litigating in Michigan does not necessitate Michigan law, and the plaintiff did not demonstrate how applying Georgia law would violate Michigan's public policy. Cambria's reliance on Banek is valid, but the present case involves a forum-selection clause, adding complexity not present in Banek. Thus, the MFIL's public policy against forum-selection clauses must be considered in this context.

Accepting Cambria's argument regarding the choice-of-law provision would prevent litigation in Michigan, contrary to the state's public policy as expressed in the Michigan Franchise Investment Law (MFIL). Unlike the Banek case, the plaintiff here demonstrates a clear violation of Michigan's prohibition on forum-selection clauses in franchise agreements. Cambria's attempt to use a choice-of-law provision to bypass this prohibition is seen as a means to circumvent the MFIL’s protections. The MFIL specifically prohibits forum-selection clauses, and the absence of any mention of choice-of-law provisions suggests that the legislature did not intend for franchisors to evade these protections easily. Furthermore, the MFIL mandates strict notice requirements for franchisors, which Cambria failed to comply with, as they did not inform Lakeside of void provisions before the agreement. The ruling emphasizes that while the choice-of-law provision in the Credit Agreement remains valid, it does not apply to the MFIL claim. The public policy inquiry from Bremen remains relevant to enforceability, and the forum-selection clause is deemed unenforceable, leading to a reversal and remand for further proceedings.