Bavaria Yachts USA, LLLP v. Bavaria Yachtbau GmbH (In re Bavaria Yachts USA, LLLP)
Docket: Case No. 16-68583-JRS; Adversary Proceeding Case No. 17-05020-JRS
Court: United States Bankruptcy Court, N.D. Georgia; October 10, 2017; Us Bankruptcy; United States Bankruptcy Court
The order addresses a renewed partial motion to dismiss filed by defendant Bavaria Yacht-bau GmbH (Yachtbau) regarding claims made by plaintiff Bavaria Yachts USA, LLLP (BUSA). The case arises from a contractual relationship between a German yacht manufacturer (Yachtbau) and its exclusive U.S. dealer (BUSA), with contracts stipulating that any litigation must occur in Germany. BUSA has initiated an adversary proceeding asserting both state law claims—such as fraud, negligent misrepresentation, breach of implied warranties, tortious interference with contract, and unjust enrichment—and federal bankruptcy law claims, including avoidance claims and objections to claims.
Yachtbau argues for dismissal based on failure to state a claim and the validity of forum selection clauses in the contracts requiring certain claims to be litigated in Würzburg, Germany. BUSA contests the enforceability of these clauses and maintains that it has sufficiently stated claims for relief.
The factual background reveals that Yachtbau is a German limited liability company manufacturing yachts, while BUSA is a Georgia limited liability partnership. BUSA served as Yachtbau's exclusive dealer in the U.S. under various Dealer Contracts, including the First Sailboat Contract established in 2011 and later replaced by the Second Sailboat Contract in November 2011. The latter contract included clauses preventing BUSA from engaging with competitors and provided a 2% discount for warranty repairs, which BUSA claims is inadequate given the extent of repair costs due to manufacturing defects. BUSA asserts that the yachts were not designed for U.S. customers and that Yachtbau had promised to address these issues.
The Second Sailboat Contract includes forum selection and merger clauses, designating Würzburg, Germany, as the exclusive jurisdiction for disputes and stating that it fully replaces prior agreements without any verbal side agreements. On May 15, 2013, Yachtbau and Horizon Bavaria USA, LLLP amended this contract, with BUSA claiming its decision was based on confidence in investments and customer satisfaction, leading to an additional $350,000 investment. BUSA alleges Yachtbau was aware this investment depended on ongoing commitments to address prior design flaws, which persisted post-amendment, including significant leaks, equipment failures, and rust issues.
Despite these issues, discussions began to expand BUSA’s dealership with Yachtbau, culminating in the Motorboat Contract signed on September 25, 2014, which mirrored the Second Sailboat Contract's terms regarding exclusivity and financial provisions. An amendment to this contract followed on September 29, 2014, where BUSA identified necessary improvements for market relevance, which Yachtbau acknowledged to encourage further investment. BUSA reportedly invested over $4.5 million total by the end of 2015, despite ongoing defects and financial distress.
A final agreement was made on July 21, 2016, amid BUSA's financial crisis, with Yachtbau purportedly seeking to understand BUSA's situation. Yachtbau claims the agreement aimed to reduce BUSA's debts, while BUSA asserts it was a further investment contingent on Yachtbau addressing the defects in the boats.
BUSA is obligated to pay Yachtbau $173,000 (or 156,000 EURO) and to allocate 100% of its boat revenues to Yachtbau. Yachtbau purportedly agreed to provide BUSA with a "loan-back" for operational costs and to send a team for boat repairs. However, BUSA claims Yachtbau began seeking dealers to take over its U.S. operations. Yachtbau asserts that they were negotiating a termination of their relationship when BUSA threatened legal action for Yachtbau to purchase BUSA's equity. On October 4, 2016, Yachtbau terminated their Dealer Contracts. Shortly thereafter, BUSA filed for Chapter 11 bankruptcy on October 18, 2016, holding a stock of ten boats. BUSA alleges Yachtbau obstructed its attempts to sell these boats during and after the bankruptcy filing. BUSA invested over $5 million in its dealings with Yachtbau.
Yachtbau filed two proofs of claim against BUSA: Claim 26 for $2,745,134.41, stating it is secured by the ten boats (which Yachtbau claims ownership of), and Claim 27 for $1,786,783.72, classified as unsecured for various debts. BUSA disputes both claims and lists over 65 creditors with undisputed claims totaling over $2 million. Yachtbau contends some claims are mischaracterized. BUSA's corporate offices were located in Georgia at the time of bankruptcy. In response to BUSA's complaint, Yachtbau filed a Partial Motion to Dismiss and an Answer. BUSA then submitted an Amended Complaint with twelve claims, including fraud, negligent misrepresentation, and claims regarding the validity of Yachtbau’s interest in the ten boats. BUSA's objections to the claims are based on alleged breaches of the Dealer Contracts by Yachtbau, asserting a right to set off amounts owed against Yachtbau's claims. Yachtbau subsequently answered the Amended Complaint and filed a Counterclaim.
Yachtbau opposes the entry of final judgment orders for claims made by BUSA and has filed a counterclaim seeking a declaratory judgment that German law governs the ownership of ten boats in question, or alternatively, that these boats are not part of the bankruptcy estate. BUSA argues that the rights to the boats fall under the Uniform Commercial Code and asserts that Yachtbau failed to perfect a security interest, rendering the boats unencumbered assets of the bankruptcy estate.
Yachtbau's Partial Motion to Dismiss BUSA’s Amended Complaint targets state law claims and claims under the Bankruptcy Code, asserting dismissal based on two main arguments: (1) BUSA's non-core claims should be dismissed under the doctrine of forum non conveniens due to their relation to Dealer Contracts, which contain forum selection clauses; (2) BUSA has not sufficiently stated a claim for relief under Federal Rule of Civil Procedure 12(b)(6) for several claims including fraudulent inducement and negligent misrepresentation.
BUSA disputes Yachtbau's characterization of the state law claims as related to the Dealer Contracts and argues that the forum selection clauses are invalid and unenforceable. The Court has instructed both parties to submit supplemental briefs regarding the influence of BUSA's objection to Yachtbau's proof of claim on the forum non conveniens analysis, with BUSA asserting that the allowance or disallowance of the claim is a core proceeding, which Yachtbau contests.
The Court determines that while the State Law Claims are statutorily classified as core under 28 U.S.C. § 157(b)(2), they are constitutionally non-core proceedings, preventing the Court from issuing a final judgment. Instead, it can only propose findings of fact and conclusions of law for the District Court's review. This raises a question about the propriety of the venue, even if the Court possesses statutory and constitutional authority to hear the claims, as referenced in Envirolite Enters. Inc. v. Glastechnische Industrie Peter Lisec Gesellschaft M.B.H.
Bankruptcy courts have jurisdiction over civil proceedings under Title 11, which includes core proceedings that affect the bankruptcy estate or arise from the Bankruptcy Code. Core proceedings can result in final judgments, while non-core proceedings, which exist independently of bankruptcy, cannot. Examples of non-core claims include fraud in the inducement and negligent misrepresentation.
Even if a matter does not qualify as core, it may still fall under the bankruptcy court's jurisdiction if it is listed in 28 U.S.C. § 157(b)(2), such as the allowance or disallowance of claims against the estate. However, the Supreme Court ruling in Stem v. Marshall establishes that bankruptcy courts lack constitutional authority to issue final judgments on state law counterclaims unless they are resolved in conjunction with a creditor’s proof of claim.
In this case, Yachtbau’s proofs of claim filed in BUSA’s Chapter 11 bankruptcy case pertain to the allowance or disallowance of claims against the estate, which is within the bankruptcy court's jurisdiction under § 157(b)(2)(B). The resolution of Yachtbau’s claims will determine the final treatment and distribution related to those claims in the adversary proceeding.
Count X (Claim to Determine Validity, Priority or Extent of Yachtbau’s Interest in the 10 Boats) and Count XI (Claim Objection) must be resolved before assessing Yachtbau's claim amounts, as these counts could impact distributions to Yachtbau. The inability to ascertain Yachtbau's claim suggests that the current adversary proceeding is a counterclaim and deemed a core proceeding under 157(b)(2)(C). However, the Supreme Court's ruling in Stem indicates that not all counterclaims qualify as core proceedings, as exemplified by a hypothetical tenant-landlord scenario in the dissenting opinion, where counterclaims arise from separate issues not necessarily resolvable within the claims allowance process.
Yachtbau's claims consist of two proofs: one for the invoice value of the boats delivered and one for additional goods and interest. The determination of state law claims will not influence the calculation of the amount owed by BUSA, as these claims focus on the accuracy of Yachtbau's proofs rather than the core issues of the bankruptcy. Consequently, the state law claims are classified as non-core, meaning the court cannot issue a final judgment on these claims, although it retains jurisdiction to hear core statutory proceedings and to rule on motions, such as denying a motion to dismiss. A forum selection clause may still apply, indicating that the determination of core versus non-core jurisdiction does not affect the appropriateness of the venue, and filing a proof of claim does not waive such clauses.
Defendant did not waive the forum selection clause due to raising improper venue as an affirmative defense. BUSA contends that the July 2016 Agreement merged with the Dealer Contracts, which lack a forum selection clause, thus exempting related claims from such clauses. Yachtbau disputes this, asserting that the July 2016 Agreement does not meet the merger doctrine’s requirements. The merger doctrine applies when a subsequent contract is inconsistent with and covers all subject matter of the original contract. The July 2016 Agreement addresses future orders and payments but omits other topics in the Dealer Contracts, such as trademarks, exclusivity, and warranties. This lack of comprehensive coverage indicates that the two agreements did not merge. Complications arise as some State Law Claims may relate to the July 2016 Agreement, which does not contain a forum selection clause. The court will later discuss the implications of this for the forum non conveniens doctrine. Yachtbau seeks dismissal of the State Law Claims under forum non conveniens, which allows a court to dismiss an action if another forum is more convenient, despite having proper jurisdiction and venue. The moving party must show an adequate alternative forum exists, public and private factors favor dismissal, and the plaintiff can reinstate the suit without undue inconvenience.
The analysis of forum non conveniens regarding forum selection clauses has evolved following the Supreme Court's ruling in Atlantic Marine Construction Co. v. United States District Court for the Eastern District of Texas. The decision established a stringent standard for overcoming a valid, mandatory forum selection clause, which is to be given significant weight in nearly all cases. Key points include:
1. A plaintiff's choice of forum carries no weight when contesting a forum selection clause; the plaintiff must prove that a transfer to the agreed forum is unwarranted.
2. Courts are to disregard private interest arguments, as agreeing to a forum selection clause waives the right to challenge the convenience of the chosen forum.
3. If a party violates a forum selection clause by filing in a different jurisdiction, a transfer under 28 U.S.C. § 1404(a) will not retain the original venue's choice-of-law rules, impacting public-interest considerations.
Consequently, the burden lies with the plaintiff to demonstrate that public interest factors oppose dismissal when a valid forum selection clause exists. However, before applying the Atlantic Marine framework, the court must first assess the validity and enforceability of the forum selection clauses in question. Yachtbau argues that the clauses in the Dealer Contracts are valid, while BUSA contends they are unreasonable and violate public policy, particularly under the Bankruptcy Code. Generally, such clauses are presumed valid unless the resisting party can show enforcement would be unreasonable under specific conditions, including fraud, deprivation of a day in court, fundamental unfairness, or contravention of public policy. There are no allegations of fraud or overreaching concerning these clauses.
BUSA contends that enforcing the forum selection clause requiring litigation in Germany would result in unreasonable inconvenience. The mere presence of inconvenience or additional costs does not render a clause unreasonable, as established in relevant case law. A party must demonstrate that its financial circumstances would effectively deprive it of its day in court if forced to litigate in a foreign venue. BUSA argues that dismissing the claims would impose undue burdens, emphasizing its precarious financial status, with only $217,000 in undisputed funds and outstanding professional fees of approximately $170,000. This leaves less than $50,000 to cover both litigation and bankruptcy administration.
Should BUSA be required to litigate in Germany, it would incur significant additional costs, including hiring foreign counsel, translating documents, and covering travel expenses for depositions and hearings. Given its limited resources, it is unlikely a foreign attorney would represent BUSA due to payment uncertainties. Moreover, many claims, specifically those related to significant damages, would still need to be litigated within this court, suggesting substantial overlapping costs and time in pursuing parallel litigation in different jurisdictions. BUSA also notes that ongoing discovery has commenced in the U.S. with existing legal representation, further complicating the potential transition to a German forum.
BUSA argues against enforcing forum selection clauses that would require it to litigate State Law Claims in Germany, claiming that this would effectively deny it the opportunity for judicial recourse due to financial constraints. If forced to pursue these claims in Germany, BUSA asserts that it would be unable to appeal a dismissal, rendering the claims effectively unlitigated. Additionally, BUSA contends that the enforcement of such clauses contravenes U.S. bankruptcy public policy, as it undermines the Bankruptcy Code’s intent, especially concerning centralizing bankruptcy proceedings. While Yachtbau counters that the claims are non-core and thus do not violate this policy, BUSA emphasizes the significance of this case within the broader bankruptcy context. The resolution of the adversary proceeding is critical for administering BUSA's bankruptcy, primarily because it involves nearly $2.5 million in disputed funds and the recovery of over $600,000 in transfers to Yachtbau. Any meaningful distribution to creditors hinges on the determination of Yachtbau’s claim and its priority, which cannot proceed until the State Law Claims are settled.
The Court expresses reluctance to dismiss State Law Claims in favor of a German court, emphasizing the potential negative impact on over 60 creditors with claims exceeding $2 million. It notes that in bankruptcy proceedings, prepetition contract obligations, including forum selection clauses, may be modified or disregarded. The Court finds the reasoning in *Walker v. Got’cha Towing* persuasive, asserting that the interests of unsecured creditors should not suffer due to the contractual relationship between BUSA and Yachtbau. BUSA's limited financial resources would hinder its ability to litigate in Germany, complicating the bankruptcy estate's administration. A prolonged litigation process in Germany would adversely affect the estate's efficient resolution. Consequently, the Court determines that the forum selection clauses are invalid and will not apply to the State Law Claims.
The Court also addresses Yachtbau’s forum non conveniens argument, concluding that while the adequacy of the German court is not disputed, the public interest factors weigh against dismissal. Key public factors include court congestion, local interests in resolving controversies, and the familiarity of the forum with applicable law. The Court ultimately considers whether BUSA has sufficiently justified retaining jurisdiction despite the forum selection clauses, focusing on these public interest considerations.
The key consideration for a motion under 28 U.S.C. § 1404(a) and a forum non conveniens analysis is whether a transfer or dismissal serves "the interest of justice." Factors influencing this decision include potential administrative difficulties due to court congestion, as established in Stewart Org. Inc. v. Ricoh Corp. The ability of courts, such as those in Germany and New York, to handle complex litigation is comparable, as both locations have relevant evidence and witnesses. However, dismissing the State Law Claims may disrupt the ongoing Chapter 11 bankruptcy case, delaying necessary resolutions regarding claims and potentially affecting over 60 creditors with claims exceeding $2 million. The plaintiff argues that transferring to New York would also introduce delays due to slower case dispositions and the uncertainty of another judge's priorities.
Public interest factors further support retaining the State Law Claims, emphasizing the local interest in resolving disputes where the underlying events occurred. While BUSA, a Georgia company, has a local interest, this is counterbalanced by Yachtbau’s connection to Germany. Ultimately, the court favors retaining jurisdiction to maintain control over the bankruptcy administration and ensure efficient resolution of claims.
The adversary proceeding is significant to the administration of a related Chapter 11 bankruptcy case involving over 60 creditors and potential claims totaling $2 million, leading to the Court's strong interest in resolving the matter. It is noted that prompt resolution of this proceeding will benefit Yachtbau, which is awaiting possible distributions. The ongoing adversary proceeding warrants special consideration because its outcome impacts the creditors and overall case administration, thereby promoting efficient and economical estate management.
The Court recognizes potential claims under both German and Georgia law, although it does not decide which law governs. It asserts that neither set of claims requires specialized expertise, as it routinely applies laws from various jurisdictions. The Court is capable of addressing these claims, making the public interest in a familiar forum neutral.
Judicial economy is also a consideration, with past cases indicating that retaining related claims within the same court enhances efficiency. The Court has been involved in the case since the bankruptcy petition was filed in October 2016, gaining substantial familiarity with the facts and legal issues. Counts VII and VIII pertain to avoidance and recovery of preferential transfers, while Count IX addresses fraudulent transfers under state law. Overall, public interest factors support retaining the action in this Court.
Counts X, XI, and XII, concerning Yachtbau’s interests in the boats, claim objections, and equitable subordination, are not governed by the forum selection clause. The court identified that claims for tortious interference and those under the July 2016 Agreement are also exempt from these clauses. Consequently, even with potential dismissals, six or more claims would still proceed in this court, representing a significant portion of the Amended Complaint. Judicial economy supports the consolidation of these claims for litigation, as they are likely to share similar discovery, witnesses, and facts, avoiding the inefficiencies of litigating related issues in different venues.
The court referenced the Atlantic Marine case, emphasizing that its ruling was based on a straightforward scenario of one plaintiff and one defendant with all claims under the forum selection clause, contrasting it with the complexities of the current bankruptcy case. The court noted that forum selection clauses pointing to foreign jurisdictions introduce unique challenges, and the Atlantic Marine decision did not address bankruptcy-specific concerns. The involvement of the bankruptcy case and related claims disrupts the parties' expectations established by these clauses.
Furthermore, enforcing the forum selection clauses in this context could lead to increased litigation costs and inefficiencies, contrary to their intended purpose of providing predictability and reducing litigation expenses for the parties involved. In essence, the court concluded that enforcing these clauses would not benefit either party and could lead to unnecessary complications in the litigation process.
Contractual forum-selection clauses can create a strategic advantage for defendants and may unfairly burden consumers. Courts should not enforce such clauses if they lead to unnecessary complications in litigation and increased costs. In this case, extraordinary circumstances justify retaining venue despite the forum selection clause, as BUSA demonstrated that enforcing it would hinder their ability to pursue State Law Claims in Germany. The Court therefore denies Yachtbau’s Motion to dismiss based on forum non conveniens.
Yachtbau also moves to dismiss several of BUSA's claims—fraud in the inducement, negligent misrepresentation, unjust enrichment, tortious interference, and equitable subordination—under Federal Rule of Civil Procedure 12(b)(6). This rule allows dismissal for failure to state a claim unless the complaint includes sufficient factual matter to make the claims plausible.
Specifically, for the fraud in the inducement claim, the plaintiff must provide detailed allegations regarding the fraudulent circumstances, including the exact misrepresentations, the timing, place, and individuals involved, as well as the benefits gained by the defendant due to the fraud. The Court will assess the plausibility of the claims without determining their validity, focusing on whether the factual allegations, taken as true, support a plausible claim for relief.
BUSA's Amended Complaint presents a claim of fraud in the inducement against Yachtbau, asserting that Yachtbau made false representations regarding the quality of its sailboats, the applicability of a discount to cover service costs, and its commitment to rectify defects. BUSA argues that these false statements were intended to persuade it to enter into contractual agreements and that it acted upon them. The allegations are deemed sufficient to establish a plausible claim of fraud to withstand a motion to dismiss.
In an alternative claim for negligent misrepresentation, BUSA outlines three required elements: the defendant's negligent provision of false information, reasonable reliance by the plaintiff on that information, and resulting economic injury. BUSA contends that Yachtbau provided statements that it should have known were false, leading to BUSA's justified reliance and subsequent damages. The court finds that BUSA has adequately pled facts that suggest potential liability for negligent misrepresentation.
BUSA also asserts a claim for unjust enrichment, arguing that it conferred a benefit to Yachtbau by establishing its market presence in the U.S. However, BUSA fails to demonstrate a lack of compensation for this benefit or any underpayment, merely stating it would be inequitable for Yachtbau to retain the benefit without remedy. The court concludes that the unjust enrichment claim lacks sufficient factual support and must be dismissed.
Finally, in Count VI, BUSA claims tortious interference with contract, which requires proof of improper conduct by the defendant, inducement of a contract breach, and resultant damage to the plaintiff. The court does not provide specific findings on this claim in the excerpt.
In Onbrand Media v. Codex Consulting, Inc., the court addresses tortious interference and equitable subordination claims. For tortious interference, the defendant must be a "stranger" to the contract allegedly interfered with. In previous cases, defendants who had legitimate economic interests related to the contract were not considered strangers. BUSA claims that Yaehtbau intentionally interfered with its business relationships involving yacht sales, leading to damages from brokers and buyers refusing to engage. The court finds that BUSA has adequately pled that Yaehtbau was a stranger to these relationships, allowing the tortious interference claim to proceed.
For equitable subordination, BUSA must prove three elements: inequitable conduct by the claimant, injury to creditors or unfair advantage to the claimant, and that subordination is consistent with the Bankruptcy Code. BUSA alleges Yaehtbau acted inequitably, exercised control over BUSA, made false promises regarding yacht repairs, and engaged in tactics that harmed other creditors. BUSA asserts that equitably subordinating Yaehtbau’s claims would align with the Bankruptcy Code. The court concludes that BUSA has sufficiently alleged facts that could support its claims of inequitable conduct.
The court partially grants and denies the defendant's Renewed Partial Motion to Dismiss, dismissing the unjust enrichment claim while allowing other claims to proceed in court rather than in Germany.
In June 2013, Horizon Bavaria USA, LLLP changed its name to Bavaria Yachts USA, LLLP, the Debtor in this case. In 2015, Bavaria Motor Yachts USA, LLC merged with BUSA. Yachtbau previously sought relief from the automatic stay in bankruptcy proceedings, arguing ownership of ten boats in BUSA's possession based on the Dealer Contracts' choice of law and retention of title clauses. This motion was not fully argued as the parties agreed to address it alongside claims in the Adversary Proceeding. The Court indicated that its comments on proof of claims were for discussion only and did not constitute findings of fact or conclusions of law.
The document discusses the implications of forum selection clauses in the context of bankruptcy, noting that such clauses do not apply to core bankruptcy claims that are independent of contractual issues. The Court highlighted a precedent where an arbitration clause was deemed inapplicable to a claim fundamentally related to bankruptcy rights. It noted that approximately $42,000 in additional attorney fees had been awarded but not yet approved for payment, which could deplete unencumbered estate assets if approved.
The excerpt references potential claims under German law that parallel BUSA’s state law claims, including rescission for deceit, unjust enrichment, and guarantees of quality. Yachtbau has also filed a lawsuit against Kenny Feld in Georgia state court, indicating a dual litigation strategy. Although Yachtbau may assert a preference for a German forum, its involvement in both bankruptcy and state court litigation complicates this position. If Yachtbau is determined to own the ten boats, this could serve as a defense against the claims; conversely, if it holds only an unperfected security interest, this may not suffice as a defense, particularly if BUSA's sale attempts occurred after the bankruptcy filing. These factual determinations are reserved for trial or summary judgment.
