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Blue Racer Midstream, LLC v. Kelchner Inc.

United States District Court, N.D. Texas, Dallas Division

February 21, 2018

KELCHNER, INC., Defendant/Third-Party Plaintiff,



         Before the Court is Defendant Kelchner, Inc.'s Motion to Transfer Venue (Doc. No. 27). After carefully considering the motion, response, reply, and applicable law, the Court DENIES Defendant Kelchner, Inc.'s motion to transfer venue because the forum-selection clause is valid, enforceable, and public interest factors do not outweigh the bargained-for forum.

         I. Background

         Plaintiff Blue Racer Midstream, LLC (“Blue Racer”), a citizen of Delaware, Virginia, Texas, Oklahoma with its principal place of business in Texas, entered a contract with Defendant Kelchner, Inc. (“Kelchner”) to perform services on a pipeline in Ohio. The contract included a forum-selection clause and a choice-of-law clause naming Dallas County, Texas, as the forum and choosing Texas law. On October 28, 2014, part of the pipeline exploded in Monroe County, Ohio. As a result of this explosion, Blue Racer filed suit against Kelchner alleging it caused the explosion by improperly applying polyurethane foam to the pipeline. Blue Racer filed this suit in Texas pursuant to a forum-selection clause in the contract.

         II. Legal Standard

         Section 1391 dictates where a plaintiff may properly bring a civil suit unless the parties negotiated a forum-selection clause. 28 U.S.C. § 1391. For venue purposes, a plaintiff limited liability company resides where it has its principal place of business. See § 1391(c); see Penrod Drilling Co. v. Johnson, 414 F.2d 1217, 1221 (5th Cir. 1969) (unincorporated entities are treated like corporations for venue purposes); see Nayani v. Horseshoe Entm't, No. 3:06-CV-01540-M, 2007 WL 1062561, *8 (N.D. Tex. Apr. 10, 2007) (Lynn, J.). The United States Supreme Court has established that when contracting parties enter a forum-selection clause, the “valid forum-selection clause should be given controlling weight in all but the most exceptional cases.” Atlantic Marine Const. Co. v. U.S. Dist. Ct. for Western Dist. of Tex., 134 S.Ct. 568, 581 (2013). The party seeking to defy the forum-selection clause bears the burden of establishing why the court should transfer the case to a different venue than the bargained-for venue. See id.

         A forum-selection clause alters the usual venue transfer analysis because the court deems the private interest factors weigh in favor of the parties' preselected forum. See id. at 582; see also 28 U.S.C. § 1404(a). “A district court may consider arguments about public-interest factors;” however, the public interest factors “will rarely defeat” the forum-selection clause. Id. The public interest factors are: “(1) the administrative difficulties flowing from court congestion; (2) the local interest in having localized interests decided at home; (3) the familiarity of the forum with the law that will govern the case; and (4) the avoidance of unnecessary problems of conflict of laws [or in] the application of foreign law.” In re Volkswagen of Am., Inc., 545 F.3d 304, 315 (5th Cir. 2008).

         III. Analysis

         Blue Racer filed this suit for state law claims of breach of contract, breach of warranty, negligence, and products liability in Dallas County state court pursuant to the forum-selection clause. Kelchner removed the case to this Court and now moves to transfer venue to the Southern District of Ohio. Kelchner argues the forum-selection clause is invalid based on an Ohio statute and the venue transfer analysis weighs in favor of transferring venue to Ohio. Blue Racer responds by arguing the forum-selection clause is valid and public interest factors do not outweigh the bargained-for forum.

         A. The Forum-Selection Clause is Valid.

         While the Supreme Court in Atlantic Marine assumed the forum-selection clause was valid, Kelchner argues the forum-selection clause here is invalid under Ohio state law and both private and public interest factors apply to determine if venue should be transferred to Ohio. See Ohio Rev. Code 4113.62(D)(2) (West 2017). Section 4113.62(D)(2) states forum-selection clauses are unenforceable when the clause requires litigation of a construction contract relating to Ohio real estate be brought in another state. Id. Kelchner argues the court should apply Texas choice-of-law rules to determine the forum-selection clause is invalid under the Ohio statute, making the Atlantic Marine analysis inapplicable. However, Blue Racer argues the forum-selection clause is valid and the Atlantic Marine analysis applies, resulting in Texas being the proper forum.

         However, the circuits are split on what law applies to determine the validity of a forum-selection clause so as to apply Atlantic Marine's analysis to venue transfer. See Barnett v. DynCorp International, L.L.C., 831 F.3d 296, 301 (5th Cir. 2016); see In re Union Elec. Co., 787 F.3d 903, 906-07 (8th Cir. 2015) (In Atlantic Marine, “the Court assumed the existence of a valid forum-selection clause for the purpose of its analysis, thereby providing no direct holding as to when such clauses should be deemed invalid.”); Aviation One of Fla., Inc. v. Airborne Ins. Consultants (PTY), Ltd., No. 16-16187, 2018 WL 359998, *10-11 (11th Cir. Jan. 11, 2018) (The court assumes valid and enforceable are synonymous and consider the factors for determining if a forum selection clause is enforceable.). In diversity cases, courts apply federal law to the enforceability of forum-selection clauses. Haynsworth v. The Corp., 121 F.3d 956, 962 (5th Cir. 1997). A party seeking to overcome the presumption that the forum-selection clause is enforceable must prove the clause is “unreasonable under the circumstances.” Id. at 963. However, when the court must interpret the forum-selection clause, the court “applies the forum state's choice-of-law rules to determine which substantive law will apply.” Weber v. PACT XPP Techs., AG, 811 F.3d 758, 770 (5th Cir. 2016). The Fifth Circuit has not stated if federal or state law applies to determine whether a forum-selection clause is valid. See Barnett, 831 F.3d at 301-03.

         Kelchner argues state law applies to determine the validity of the forum-selection clause. Kelchner cites two Texas district courts that have considered which law applies to determine a forum-selection clause's validity. See TSI USA, LLC v. Uber Technologies, Inc., Civ. Action No. 3:16-cv-2177-L, 2017 WL 106835, at *2 (N.D. Tex. Jan. 11, 2017) (Horan, MJ.); See Brown v. Federated Capital Corp., 991 F.Supp.2d 857, 861-62 (S.D. Tex. Jan. 6, 2014). Both cases recognized the law is unsettled and decided the motion to transfer not on validity but on contract interpretation, which required state choice-of-law rules to determine which state's substantive law applied. See TSI USA, 2017 WL 106835, at *2; See Brown, 991 F.Supp.2d at 861-62.

         While the parties framed the issue before the court in TSI USA v. Uber as one of forum-selection clause validity, the court found the underlying issue was whether the forum-selection clause survived the termination of the contract, which “is a question of scope, not validity.” TSI USA, 2017 WL 106835, at *2. In an opinion preceding the Supreme Court's Atlantic Marine decision, a district court loosely referred to the forum-selection clause issue as one of validity, but the true issue was whether the credit card user was bound to the terms of the contract that contained the forum-selection clause, which substantive law determined. Brown, 991 F.Supp.2d at 861-62. The courts in these two cases applied substantive state law because ...

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