Wyldewood Cellars, Inc. v. Torro, LLC

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WYLDEWOOD CELLARS, INC., and JOHN BREWER, Plaintiffs, v. TORRO, LLC d/b/a TORRO FUNDING, Defendant.

No. 23-1017-DDC-GEB

United States District Court, D. Kansas

June 1, 2023

MEMORANDUM AND ORDER

DANIEL D. CRABTREE, UNITED STATES DISTRICT JUDGE

This matter comes before the court on defendant Torro, LLC's Motion to Transfer (Doc. 6). Plaintiffs Wyldewood Cellars Inc. and John Brewer have responded (Doc. 12), and defendant has replied to plaintiffs' Response (Doc. 14). For reasons explained below, the court grants defendant's Motion to Transfer (Doc. 6) and transfers this lawsuit to the United States District Court for the District of Utah.

I. Factual Background

The following facts come from the Verified Petition that plaintiffs filed in Sumner County, Kansas District Court (Doc. 1-1), before the action's removal to our court, as well as exhibits attached to it.^[1] Plaintiff Wyldewood-a family-owned vineyard and winery in Peck, Kansas-sustained financial injury during the COVID-19 pandemic. Doc. 1-1 at 5 (Pet. ¶¶ 16-17). Like many small businesses, it sought financing from lenders to stay afloat. Defendant Torro provided funding to plaintiffs' vineyard and winery business in the form of a “merchant cash advance” (MCA) agreement in March 2021.^[2] Id. at 6 (Pet. ¶ 24). Relevant here, the parties' MCA agreement includes the following forum selection clause:

43. Governing Law, Venue, and Jurisdiction. This Agreement shall be governed by and construed exclusively in accordance with the laws of the State of Utah, without regards to any applicable principles of conflicts of law. Any lawsuit, action or proceeding arising out of or in connection with this Agreement shall be instituted exclusively in any court sitting in Utah State, (the “Acceptable Forums”). The parties agree that the Acceptable Forums are convenient, and submit to the jurisdiction of the Acceptable Forums and waive any and all objections to inconvenience of the jurisdiction or venue. Should a proceeding be initiated in any other forum, each of the parties to this Agreement irrevocably waives any right to oppose any motion or application made by any other party to transfer such proceeding to an Acceptable Forum. Seller and its Guarantor(s) acknowledge and agree that the Purchase Price is being paid and received by Seller in Utah, that the Specified Percentage of the Future Receipts are being delivered to [defendant] LLC in Utah, and that the transaction contemplated in this Agreement was negotiated, and is being carried out, in Utah. Seller and its Guarantor(s) acknowledge and agree that Utah has a reasonable relationship to this transaction.

Doc. 1-1 at 49 (MCA Agreement § 43).

Shortly after entering this agreement, plaintiff Wydlewood was no longer able to make daily payments and defaulted. Id. at 18 (Pet. ¶¶ 75-76). In July 2021, defendant recovered a judgment against plaintiffs for $118,699 plus costs in Utah state court. Id. (Pet. ¶ 76). Defendant then sought to enforce this judgment against plaintiffs in a state court in Johnson County, Kansas. Id. (Pet. ¶ 77).

The lawsuit now pending before this court is the second lawsuit in this story. In it, commenced in December 2022, plaintiffs sued defendant for (1) violating RICO; (2) conspiracy under 18 U.S.C. § l962; (3) tortious interference with a contract; (4) violating the Kansas Consumer Protection Act (KCPA) by committing deceptive acts; (5) violating the KCPA by committing unconscionable acts; and (6) breach of contract. Doc. 1-1 at 19-38 (Pet. ¶¶ 79-189). Plaintiffs filed this action in the District Court of Sumner County, Kansas. See Doc. 1-1. Defendant removed the case to our court, invoking diversity jurisdiction under 28 U.S.C. § 1332. Doc. 1 at 1.

Relying on a forum selection clause in the MCA agreement between defendant and plaintiffs, defendant now moves to transfer this case. Doc. 6. This issue is fully briefed. For reasons explained below, the court grants defendant's Motion to Transfer (Doc. 6).

II. Legal Standards

A. Valid Forum Selection Clauses and Jurisdiction

“Federal courts are courts of limited jurisdiction and, as such, must have a statutory basis to exercise jurisdiction.” Montoya v. Chao, 296 F.3d 952, 955 (10th Cir. 2002) (citation omitted). “A court lacking jurisdiction cannot render judgment but must dismiss the cause at any stage of the proceedings in which it becomes apparent that jurisdiction is lacking.” Basso v. Utah Power & Light Co., 495 F.2d 906, 909 (10th Cir. 1974) (citation omitted); see also 28 U.S.C. § 1447(c) (“If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.”). Even where a federal court has subject matter jurisdiction, “a valid forum selection clause may prohibit a federal court from exercising jurisdiction if the parties contractually agreed to litigate the matter elsewhere.” K.R.W. Constr., Inc. v. StrongholdEng'gInc., 598 F.Supp.3d 1129, 1135-36 (D. Kan. 2022).

B. Standard for Transfer under 28 U.S.C. § 1404

Title 28 U.S.C. § 1404 governs change of venue. It provides that, “[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented.” 28 U.S.C. § 1404(a). A defendant who has removed an action from state court “can seek a transfer under § 1404(a)” if “the case can be better litigated and tried in another division or district.” Hollis v. Fla. State Univ., 259 F.3d 1295, 1300 (11th Cir. 2001). A court may transfer an action “under § 1404(a) at any time during the pendency of the case, even after judgment has been entered.” Chrysler Credit Corp. v. Country Chrysler, Inc., 928 F.2d 1509, 1516 (10th Cir. 1991) (citing 15 Charles Alan Wright, et al., Federal Practice and Procedure § 3844 at 334-35 (1986)).

A district court has broad discretion under § 1404(a) to adjudicate motions to transfer on a case-by-case review of convenience and fairness. Id. at 1516. The Tenth Circuit has instructed district courts to consider the following factors when determining whether to transfer a case under this provision:

plaintiff's choice of forum; the accessibility of witnesses and other sources of proof, including the availability of compulsory process to insure attendance of witnesses; the cost of making the necessary proof; questions as to the enforceability of a judgment if one is obtained; relative advantages and obstacles to a fair trial; difficulties that may arise from congested dockets; the possibility of the existence of questions arising in the area of conflict of laws; the advantage of having a local court determine questions of local law; and, all other considerations of a practical nature that make a trial easy, expeditious and economical.

Id. (quoting Tex. Gulf Sulphur Co. v. Ritter, 371 F.2d 145, 147 (10th Cir. 1967)); see also Emps. Mut. Cas. Co. v. Bartile Roofs, Inc., 618 F.3d 1153, 1167 (10th Cir. 2010). The party moving to transfer a case bears the burden to show that transfer is appropriate under § 1404(a). Bartile Roofs, Inc., 618 F.3d at 1167. In the absence of a valid forum selection clause, the movant must “demonstrate that the balance of factors ‘strongly favors' a transfer of venue under § 1404(a).” Id. at 1167 n.13 (citations omitted). But when the moving party uses § 1404(a) as a mechanism to enforce a valid forum selection clause, different rules apply.

“When the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause.” Atl. Marine Constr. Co. v. U.S. Dist. Ct. for W. Dist. of Tex., 571 U.S. 49, 62 (2013). In that situation, a court should deny a § 1404(a) motion to transfer only “under extraordinary circumstances unrelated to the convenience of the parties[.]” Id. “The presence of a valid forum-selection clause requires district courts to adjust their usual § 1404(a) analysis in three ways[:]” (1) plaintiff's choice of forum bears no weight on the analysis; (2) the parties' private interests-such as convenience for themselves or witnesses likewise bears no weight; and (3) the § 1404(a) transfer of venue won't carry the original venue's choice of law rules. Id. at 63-65. Thus, in a case subject to a valid forum selection clause, “a district court may consider argument about public-interest factors only.” Id. at 64. And “[b]ecause those factors will rarely defeat a transfer motion, the practical result is that forum-selection clauses should control except in unusual cases.” Id.

III. Analysis

Defendant has alleged facts demonstrating that the parties are diverse for subject matter jurisdiction purposes under 28 U.S.C. § 1332. Doc. 1 at 1-2 (Notice of Removal ¶¶ 3-4, 6). Having decided that it possesses subject matter jurisdiction, the court next considers whether a valid forum-selection clause nonetheless prohibits it from exercising jurisdiction. As explained below, the court concludes that a valid forum-selection clause exists; and thus, the parties contractually agreed to litigate the matter elsewhere.^[3] This agreement means, however, that our court-absent exceptions not presented here-must decline to exercise its jurisdiction.

Defendant also demonstrates that the § 1404(a) factors favor transfer. For both reasons, the court grants defendant's Motion to Transfer (Doc. 6).

Plaintiffs oppose the transfer. They argue (1) the contract's forum selection clause is no longer enforceable; (2) alternatively if enforceable, the forum selection clause doesn't apply to their claims; (3) transfer here would violate Kansas's public policy; and (4) the court...