Frankford Crossing Shopping Center Dallas, Tx. Ltd. Partnership v. Pho Partners, LLC

Citations: 942 F. Supp. 2d 366; 2013 WL 1800115; 2013 U.S. Dist. LEXIS 60885Docket: No. 12-CV-6424L

Court: District Court, W.D. New York; April 29, 2013; Federal District Court

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The action involves a landlord-tenant dispute regarding Frankford Crossing, a shopping center in Dallas, Texas. Although the case is being heard in Rochester, New York, the parties consented to personal jurisdiction there through a forum-selection clause in their lease agreement. The defendants, Pho Partners, LLC, Smooth Sailing, LP, and Phillip Silva, have filed a motion to dismiss for lack of personal jurisdiction or alternatively seek to transfer the case to Texas. The plaintiff, Frankford Crossing Shopping Center Dallas, is requesting to remand the case to the original New York state court.

Frankford, a Delaware limited partnership based in Rochester, entered into a lease agreement with Aquaesque, Inc. in March 2007, with Silva signing as president. Silva also executed a guaranty for Aquaesque’s lease obligations. The lease contains a jurisdiction clause mandating that disputes be resolved in the state where the owner’s principal office is located, while the guaranty requires Silva to ensure performance of the lease by Aquaesque.

In August 2007, Smooth Sailing, LP replaced Aquaesque as tenant, with Silva signing the substitution agreement, which stated the lease remained in effect. A dispute later arose, prompting Silva to file a lawsuit against Frankford in Texas federal court. In July 2010, a settlement was reached, with Silva agreeing to guarantee certain payments and reaffirming the terms of the original guaranty.

In February 2011, Smooth Sailing assigned its lease interest to Pho Partners, LLC, with Silva executing the assignment as both a manager of Pho and a personal guarantor. On May 29, 2012, Pho notified Frankford of its intent to vacate the premises and Silva proposed a settlement payment of $119,067.48 to resolve any claims under the guaranty, which Frankford did not accept.

On May 30, 2012, Silva initiated a lawsuit against Frankford in Texas state court, seeking a declaratory judgment regarding the lease, asserting that Aquaesque, Smooth Sailing, and Pho had not materially defaulted, and limiting his liability under the Guaranty to $119,067.48. He also sought a rebate for benefits Frankford gained from mitigating damages and re-leasing the property. Subsequently, on June 4, 2012, Frankford filed a lawsuit in New York State Supreme Court against Silva, Smooth Sailing, and Pho, claiming breach of the lease and seeking $850,000 in damages. Both cases were later removed to federal court, with Frankford removing the Texas case based on diversity of citizenship on June 27, 2012, and moving to dismiss for improper venue or to transfer the case to New York. Defendants in the New York action removed it to federal court on August 9, 2012, contesting personal jurisdiction and alternatively seeking to transfer the case back to Texas.

On February 22, 2013, Magistrate Judge Irma Carrillo Ramirez recommended granting Frankford's motion to dismiss, citing the mandatory and enforceable nature of the forum selection clause in the lease, which Silva was bound by. This recommendation was adopted by the District Court on March 28, 2013. The defendants' motion to transfer to the Northern District of Texas was rendered moot by the dismissal of Silva's case in Texas. The defendants argued against personal jurisdiction based on New York's business statutes, but Frankford asserted jurisdiction based on the consent provided by the forum selection clause. The enforceability of such clauses is strongly favored in the Circuit, with both Supreme Court and Second Circuit precedents emphasizing their economic value and the need for enforcement according to the parties' expectations. Several conditions must be satisfied for the enforcement of forum-selection clauses.

A court must establish that a forum-selection clause was reasonably communicated to the parties involved. Such a clause is enforceable unless it was obtained through fraud or overreaching, and enforcement is only denied if it is shown to be unreasonable or unjust. The party seeking enforcement must demonstrate that the clause is mandatory and that the claims and parties fall within its scope. In this case, the defendants acknowledge the clause's mandatory nature and relevance but argue that it does not explicitly mention New York and is hidden in fine print. However, the lease indicates Frankford's principal office is in Rochester, New York, making the jurisdiction clear. The clause's visibility is comparable to other document terms, and there is no evidence that parties did not read or understand it. Legal principles dictate that signing a contract implies knowledge and consent to all terms, including forum-selection clauses. Previous cases support this presumption, and the defendants' claim that the Guaranty lacks a forum-selection clause and that they are protected by the "fiduciary shield" doctrine is insufficient to negate their obligation under the clause.

Silva fails to acknowledge that the New York Court of Appeals has rejected the fiduciary shield doctrine, as established in prior case law. Courts have consistently ruled that an individual guarantor can be bound by a forum selection clause in the underlying contract if the guaranty is broadly worded, executed simultaneously with the contract, and pertains to the same subject matter. A lack of close connection between the guaranty and the contract, however, may result in a reluctance to enforce such clauses against a guarantor. The court concludes that the forum selection clause in this case is mandatory, applicable to the dispute, and binding on all parties. Defendants have not demonstrated that enforcing this clause would be unreasonable or unjust. Therefore, the court can exercise personal jurisdiction over the defendants without needing to consider long-arm jurisdiction arguments.

Regarding Frankford's motion to remand the case to New York State Supreme Court, Frankford argues that the forum selection clause restricts any related actions to state courts and does not permit federal venue. Defendants counter that the clause does not clearly waive their right to remove the case to federal court. Generally, forum selection clauses can waive the right to remove, and courts interpret these clauses based on their plain meaning. For a waiver to be enforceable, it must be clear and unequivocal; ambiguities will be construed against the drafter.

A forum selection clause does not require specific language to demonstrate a waiver of the right to remove a case; instead, it must clearly show the parties' intent to waive such rights through its plain meaning. Courts have established that waivers of removal rights must be clear and unequivocal, particularly in the context of contractual agreements. In this case, the forum selection clause unambiguously indicates that disputes arising from the lease agreement must be litigated exclusively in the state, county, or city courts where the owner's principal office is located, which is in Rochester, Monroe County, New York. The clause's wording, particularly the use of "must," establishes that only the specified courts are proper venues for such disputes, excluding other jurisdictions. Furthermore, the distinction between “courts in the state, county or city” and “the state, county or city courts” signifies a jurisdictional limitation rather than a mere geographical one, reinforcing that the designated courts must adhere to the specified types. This interpretation avoids redundancy in the clause's language and aligns with New York contract law principles, leading to the conclusion that the defendants have waived their right to remove the case to federal court, necessitating remand to state court.

The clause in question mandates that any action arising from the lease must be adjudicated exclusively in designated New York state courts, indicating an intention by the parties to waive their rights to federal removal. The language specifies that controversies must be “determined” in these courts, reinforcing this waiver. A precedent case, John’s Insulation, Inc. v. Siska Constr. Co., illustrates that similar language can be ambiguous regarding removal rights, but in this instance, it clearly denotes an exclusive jurisdiction in New York state courts. Additionally, defendant Silva is bound by this clause due to his signature on the Guaranty. Consequently, the motion to remand filed by Frankford is granted, while the defendants' motion to dismiss or transfer venue is denied. The case will be remanded to the New York State Supreme Court, Monroe County. The facts referenced are drawn from a related case involving the same parties, which is acknowledged but not contested by them in this matter.