Judge: Mark A. Young, Case: 21SMCV01994, Date: 2023-04-20 Tentative Ruling
Case Number: 21SMCV01994 Hearing Date: April 20, 2023 Dept: M
CASE NAME: Surrey, et
al., v. Zukin, et al.
CASE NO.: 21SMCV01994
MOTION: Motion
to Dismiss
HEARING DATE: 4/20/2023
Legal
Standard
“Forum non conveniens is an
equitable doctrine invoking the discretionary power of a court to decline to
exercise the jurisdiction it has over a transitory cause of action when it
believes that the action may be more appropriately and justly tried elsewhere.
[Citations].” (Stangvik v. Shiley, Inc. (1991) 54 Cal.3d 744, 751.) The
doctrine has been codified in Code of Civil Procedure section 410.30. “The
inquiry is whether ‘in the interest of substantial justice an action should be
heard in a forum outside this state.’ ” (Animal Film, LLC v. D.E.J.
Productions, Inc. (2011) 193 Cal.App.4th 466, 471.)
“The procedure for enforcing a forum
selection clause is a motion to stay or dismiss for forum non conveniens.” (Olinick
v. BMG Entertainment (2006) 138 Cal. App. 4th 1286, 1294.) An agreement to
litigate in a forum outside California does not deprive California courts of
subject matter jurisdiction; it merely empowers the court to decline to
exercise its jurisdiction. (Miller-Leigh LLC v. Henson (2007) 152
Cal.App.4th 1143, 1149.) Because California favors enforcement of mandatory
forum selection clauses they will be given effect absent a showing by the party
resisting the motion, usually the plaintiff, that enforcement of such clauses
would be unreasonable. (Quanta Computer Inc. v. Japan Communications Inc.¿(2018)
21 Cal.App.5th 438, 445.) “The factors that apply generally to a forum non
conveniens motion do not control in a case involving a mandatory forum
selection clause. Where there is a mandatory forum selection clause, ‘the test
is simply whether application of the clause is unfair or unreasonable, and the
clause is usually given effect. Claims that the previously chosen forum is
unfair or inconvenient are generally rejected. A court will usually honor a
mandatory forum selection clause without extensive analysis of factors relating
to convenience.” (Ibid., citations and internal quotation marks
omitted.)
Analysis
Defendants James Zukin and Zukin
Partners, LLC (the “Zukin Parties”) move pursuant to Code of Civil Procedure §
410.30 for an order dismissing or staying this lawsuit on the grounds of forum
non conveniens while this case proceeds in a Delaware Court. The Zukin Parties contend
that Plaintiffs agreed to bring any claims arising out of, or related to, a
certain agreement between themselves and WCE in Delaware courts.
This case arises from the sale of a
medical practice. Plaintiffs are doctors and the former Chief Executive Officer
of SCRC, a fertility center that, with ART and Roxbury, comprise a full-scale
fertility and reproductive medical center with locations in Beverly Hills and
Santa Barbara, California (the “Practice”). (FAC ¶¶ 16-17.) Plaintiffs are
shareholders of SCRC, ART, or Roxbury. (¶¶ 6-12.)
On December 26, 2019, a private
equity firm, Lindsay Goldberg, purchased 100% of SCRC and 51% of ART and
Roxbury. (Id., ¶ 24.) As part of the transaction, SCRC changed its name to WCE
CA Fertility, Inc. (“WCE”). (Zukin Decl., ¶ 6.) The purchase of the Practice
was consummated in three purchase agreements: a stock purchase agreement for
the sale the Plaintiffs’ equity interest in SCRC, a membership purchase
agreement for the sale of Plaintiffs’ membership interest in ART, and a
membership purchase agreement for the sale of Plaintiffs’ membership interest
in Roxbury (hereinafter, the “PAs”). (Id., ¶ 7.) Plaintiffs were represented by
their own legal counsel and their own financial advisors during the negotiation
of the PAs. (Id., ¶ 5; see FAC, ¶ 25.) Zukin Partners LLC provided financial
advisory services to WCE in connection with the sale, and it contends it did
not represent Plaintiffs. (Zukin Decl., ¶¶ 3-5, Exs. A-B.)
Plaintiffs, on the other hand,
allege that they hired the Zukin Parties to explore the potential sale of the
Practice. (FAC ¶¶ 2, 19, 23.) They claim that Zukin put together the deal with
Lindsay Goldberg, LLC, and the Zukin Parties convinced Plaintiffs to enter the
deal by allegedly misrepresenting certain terms of the deal. (See FAC ¶¶ 2-5.)
Plaintiffs claim fraud based on such misrepresentations, and for Zukin’s
failure to negotiate certain contract terms. (See FAC ¶¶40-59.) As a result of
Zukin’s failures and omissions, Plaintiffs were damaged.
The PAs were signed by each of the
Plaintiffs (except Dr. Akopians), by WCE, and the buyer SCRC WCE LLC. (Zukin
Decl. ¶ 7 & Exs. C-E.) The Zukin Parties,
who did not sign the PAs, point to a forum selection clause within the PAs:
9.18 Exclusive Venue THE PARTIES
AGREE THAT ALL DISPUTES, LEGAL ACTIONS, SUITS AND PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT (UNLESS OTHERWISE REQUIRED BY AN ANCILLARY
AGREEMENT) MUST BE BROUGHT EXCLUSIVELY IN THE STATE OR FEDERAL COURTS LOCATED
IN NEW CASTLE COUNTY, DELAWARE (COLLECTIVELY THE “DESIGNATED COURTS”). EACH
PARTY HEREBY CONSENTS AND SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE
DESIGNATED COURTS. NO LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT MAY BE BROUGHT IN ANY OTHER FORUM. EACH PARTY HEREBY IRREVOCABLY
WAIVES ALL CLAIMS OF IMMUNITY FROM JURISDICTION AND ANY OBJECTION WHICH SUCH
PARTY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR
PROCEEDING IN ANY DESIGNATED COURT, INCLUDING ANY RIGHT TO OBJECT ON THE BASIS
THAT ANY DISPUTE.
“In California, forum selection clauses are valid and may
be given effect, in the court’s discretion and in the absence of a showing
that enforcement of such a clause would be unreasonable.” (Trident Labs,
Inc. v. Merrill Lynch Commercial Finance Corp. (2011) 200 Cal.App.4th 147,
153, emphasis added, quotation marks omitted.) “The burden of proof is on the
plaintiff, and the factors involved in traditional forum non conveniens analysis do not
control. Instead, the forum selection clause is presumed valid and will be
enforced unless the plaintiff shows that enforcement of the clause would be
unreasonable under the circumstances of the case.” (Id. at 154,
citation and quotation marks omitted.)
In Trident Labs, the court
found circumstances where enforcement of a presumptively valid forum selection
clause would be unreasonable. There, the court concluded “when a party, under
the terms of a forum selection clause, has the option to litigate in more than
one forum, that party cannot choose to extensively litigate in the original
forum by filing a cross-complaint, conducting substantial discovery, and filing
motions seeking relief from the forum court, and then decide to enforce the
right it otherwise would have had to compel the other party to litigate in a
different forum. Such circumstances make enforcement of the forum selection
clause unreasonable as a matter of law.” (Id., at 157.) The court found
that because the moving party had chosen to litigate in California, and
substantially invoked the mechanisms of California litigation, that it would be
unreasonable to enforce the forum selection clause.
Here,
Plaintiffs have demonstrated circumstances in which the enforcement of the
Delaware forum selection clause against them, and in favor of non-signatories,
the Zukin Parties, would be unreasonable. First, the Zukin Parties are not signatories
to any of the agreements, though they apparently assisted in the negotiations.
Zukin cites authority, Bugna v. Fike, (2000) 80 Cal. App. 4th 229, which
holds that under some circumstances non-signatories may enforce a forum
selection provision. The Bugna court relied upon Bancomer S.A. v. Superior Court
(1996) 44 Cal. App. 4th 1450, and other cases to enumerate three factors to
determine whether the parties are so closely related that a non-signatory should
be able to enforce a forum selection clause.
The three situations included where the non-signatory was (1) an agent
for the signatories, (2) negotiated the deal that forms the basis for the
claims, or (3) there is sufficient evidence of a defined or intertwined
business relationship with a contracting party.
(Bugna, 80 Cal. App. 4th at 233.)
Unlike Bugna and other cases, however,
the matter is complicated by the inclusion of a non-signatory Plaintiff. Zukin
has not cited authority which holds that a non-signatory may compel another
non-signatory to a selected forum, and the Court was unable to find any such
cases. Moreover, there are other reasons
why enforcement would be unreasonable. Zukin
has substantially engaged in this
California litigation, and the case is well into discovery. The Zukin Parties filed
an answer to the initial complaint, without asserting jurisdictional
challenges. Further, they filed a cross-complaint against WCE, pursuant to an
indemnification clause in the Zukin Parties’ engagement agreement with WCE.
Further, the parties served written discovery, and engaged in at least one
deposition.
Zukin attempts to distinguish Trident
Labs on the grounds that because they were not signatories, Zukin was
unaware of the clauses until recently. The Court agrees that, to an extent,
this action does not arise to the same extent of unfairness as Trident Labs.
In Trident Labs, the moving parties were aware of their forum selection
clause from inception and chose to disregard it. With that said, there is
extensive evidence that the Zukin Parties were aware of the forum selection
clauses as early as February 2019, or at least by December 2019. (See King Decl., ¶¶ 2-3, Exhs. A and B.) While counsel argues that they did not discover
the clauses until June 2022, that assertion appears dubious at best. (Schatmeier Decl., ¶ 10.) Counsel for the Zukin Parties may not have
discovered the PAs until June 2022, but the Zukin Parties certainly possessed
them beforehand because they were “discovered” while preparing a document production
to Plaintiffs. (Id.)
The Zukin Parties also attempt to
pin the blame for their delay on Plaintiffs, since in June 2022, Plaintiff
suggested that they would be filing an amended complaint. Zukin does not
explain why or how the proposed amended complaint could have changed anything
about this motion to dismiss. With this, Zukin admits that they could have
brought their motion as early as June 2022, but chose not to. The Zukin Parties
strategically delayed filing this motion until Plaintiffs revealed the contents
of their first amended complaint (FAC). Notably, Defendants did not disclose
their intent to move to dismiss during the meet and confer efforts in June
2022. It was apparently only after Plaintiffs filed the FAC that Zukin parties
filed this motion on March 24, 2023. Thus, even under Zukin’s preferred facts,
Zukin has an unexplained 8-month delay in bringing this motion. As stated, however, it would appear that the
Zukin Parties were in possession of the PAs even before this litigation commenced.
While Zukin could have failed to review the documents emailed in February 2019
or December 2019, or provide them to their own counsel, this adds to the
unreasonableness of the circumstances.
Simply put, it would be unfair to
allow for dismissal where the parties litigated this matter for a year and a
half, the moving party filed their own cross-complaint, and the moving party
purposefully delayed filing the forum non-conveniens motion.
Accordingly, the motion is DENIED.