Power Paragon, Inc. v. Precision Technology USA, Inc.
2008 WL 5781055, 605 F.Supp. 2d 722, 2008 U.S. Dist. LEXIS 108324 (2008)
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Rule of Law:
When a contract includes a valid and enforceable forum selection clause specifying a particular judicial district for disputes, a federal court will enforce that clause by transferring the case to the agreed-upon venue, even if statutory venue might otherwise be proper in the forum where the suit was originally filed. An offer with an explicit expiration period will be deemed invalid if not accepted within that time, causing a subsequent purchase order to be considered the new operative offer for contract formation under the Uniform Commercial Code.
Facts:
- Power Paragon, Inc. is a Delaware corporation with its principal place of business in Anaheim, California, providing engineering, development, manufacturing, and integration systems.
- Precision Technology USA, Inc. is a Virginia corporation with its principal place of business in Roanoke, Virginia, manufacturing and supplying industrial linear motion actuators.
- On or about March 10, 2006, L-3 Communications Corporation (Power Paragon's parent company) and Precision Technology entered into a contract for the delivery of a Motor Controller for an Aircraft Barricade Stanchion (the "Product").
- The contract specified that the Product was to be delivered to Precision Technology by July 31, 2006, and installed on the U.S. Navy ship CVN-77, dry-docked in Newport News, Virginia; Power Paragon was also required to provide subsequent field support services.
- Negotiations included Precision Technology's email solicitation (Oct 5, 2005), Power Paragon's Technical Proposal (Nov 8, 2005), and a Supplemental Proposal from L-3 (Dec 20, 2005) which stated it was valid for 45 days.
- Precision Technology's Purchase Order, dated March 10, 2006, established the contract price for the Product and field support, and its attached Terms and Conditions included a clause stating, "Venue shall be the applicable state or federal court in Roanoke, Virginia."
- The Product was initially shipped from L-3's facility to Michigan and then New York for testing before being shipped to the Navy Shipyard in Newport News, Virginia, for installation on the Ship on or about May 30, 2008.
- Precision Technology paid the first three milestone payments totaling approximately $205,000 for the Product but failed to pay the remaining four milestone payments totaling approximately $260,000, as well as $78,900 for post-delivery field support.
Procedural Posture:
- On May 13, 2008, Power Paragon, Inc. (Plaintiff) filed a Complaint in the United States District Court for the Eastern District of Virginia, alleging breach of contract and unjust enrichment against Precision Technology USA, Inc. (Defendant).
- On June 25, 2008, Precision Technology USA, Inc. (Defendant) filed a Rule 12(b)(3) Motion to Dismiss for Improper Venue and an accompanying Memorandum in Support.
- On July 9, 2008, Power Paragon, Inc. (Plaintiff) filed its Memorandum in Opposition to Defendant's Motion.
- On June 15, 2008, Precision Technology USA, Inc. (Defendant) filed its reply memorandum.
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Issue:
Does federal venue statute 28 U.S.C. § 1391 establish proper venue in the Eastern District of Virginia for a breach of contract claim, and if so, is a forum selection clause in the controlling contract requiring venue in the Western District of Virginia enforceable, thereby warranting transfer of the case?
Opinions:
Majority - Raymond A. Jackson
No, while statutory venue could potentially be established in the Eastern District of Virginia, an enforceable forum selection clause in the contract mandates transfer of the case to the Western District of Virginia. The court first examined venue under 28 U.S.C. § 1391(a)(2) concerning where a "substantial part of the events or omissions giving rise to the claim occurred." It found that the critical events entitling Power Paragon to payment (procurement, fabrication, testing, and field support services) primarily took place outside the Eastern District, making this section insufficient based on the "events or omissions." However, the court found venue proper under the "property" section of § 1391(a)(2) because the Product, the subject of the action, was currently situated in Newport News within the Eastern District, and its final installation there was contemplated by the contract. The court also found venue proper under 28 U.S.C. § 1391(a)(1) because Precision Technology, as a corporate defendant, "resided" in the Eastern District due to its "continuous, systematic and substantial" contacts there, which were sufficient to subject it to personal jurisdiction. Despite potential statutory venue, the court then analyzed the forum selection clause in Precision Technology's Purchase Order. Applying Virginia Code § 8.2-207 (UCC's 'battle of the forms'), the court determined that Power Paragon's December 20 Supplemental Proposal, which included an arbitration clause, had an explicit 45-day validity period and had therefore expired by the time Precision Technology issued its March 10 Purchase Order. As such, Precision Technology's Purchase Order constituted the operative offer, which Power Paragon accepted by manufacturing and shipping the Product. Consequently, Precision Technology's forum selection clause, specifying Roanoke, Virginia as venue, became a controlling term of the contract. Citing M/S Bremen v. Zapata Off-Shore Co., the court affirmed that forum selection clauses are prima facie valid and enforceable unless shown to be unreasonable due to fraud, extreme inconvenience, or contravention of public policy. As Power Paragon did not demonstrate any such unreasonableness, the clause was deemed enforceable. The court concluded that transfer, rather than dismissal, was the appropriate remedy for an enforceable forum selection clause. Therefore, the court denied the motion to dismiss but ordered the case transferred to the United States District Court for the Western District of Virginia.
Analysis:
This case offers critical insights into the interplay between federal statutory venue provisions and contractual forum selection clauses, particularly within a "battle of the forms" context under the UCC. It highlights that while multiple districts might satisfy federal venue requirements, an unambiguous and enforceable forum selection clause will dictate the proper forum, leading to transfer rather than dismissal. The court's meticulous application of UCC § 2-207 regarding offer expiration underscores the importance of precise contract language and timing in determining the final terms of an agreement, a crucial lesson for contract formation. Moreover, the decision reaffirms the strong judicial deference given to prima facie valid forum selection clauses, placing a high burden on the party challenging their enforceability.
