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Spectra Financial Services LLC v. RMP Capital Corp.

United States District Court, D. Arizona

April 3, 2014

SPECTRA FINANCIAL SERVICES LLC, an Arizona limited liability company; ROBERT MELILLO; and NICHOLE MELILLO Plaintiffs,
v.
RMP CAPITAL CORP., an Illinois corporation, Defendant.

ORDER AND OPINION

JOHN W. SEDWICK, District Judge.

I. MOTION PRESENTED

At docket 4, Defendant RMP Capital Corp. ("Defendant" or "RMP") filed a motion to dismiss pursuant to Rule 12(b)(3) of the Federal Rules of Civil Procedure for improper venue. Plaintiffs Spectra Financial Services, LLC ("Spectra"), Robert Melillo and Nichole Melillo ("Melillos"; collectively "Plaintiffs") respond at docket 7. Defendant replies at docket 10. Oral argument was not requested and would not assist the court.

II. BACKGROUND

The dispute at issue involves four related agreements between RMP, Spectra, and the Melillos. RMP and Spectra are engaged in the factoring finance business. RMP's principal place of business is, and at all relevant times has been, in Suffolk County, New York. Spectra's principal place of business is in Maricopa County; the Melillos, officers and owners of Spectra, reside in Maricopa County. Spectra is no longer operating and is in the process of winding down.

In December of 2010, Spectra, through the Melillos, requested that RMP refactor the accounts receivable Spectra was purchasing from its clients. That same month, RMP and Spectra entered into a Refactoring and Security Agreement (the "Agreement"), whereby RMP agreed to advance funds to Spectra.[1] Neither party disputes that the Agreement was an arms-length one, entered into by two business entities who had the opportunity to consult independent counsel before its execution. Neither party, however, had an attorney present during the negotiation and execution of the Agreement. On the same day the parties executed the Agreement, the Melillos each executed a guaranty agreement (the "Guaranties"), whereby they guaranteed to RMP all sums and obligations owed by Spectra under the Agreement.[2]

In April 2012, RMP informed Spectra that Spectra had an over advance of funds to clients and was therefore out of compliance with the financing procedures required under the Agreement, but that Spectra could sign a promissory note in order to account for the over advance. Spectra voiced disagreement with RMP's calculations and RMP's assertion that Spectra was not in compliance with the Agreement, but nonetheless signed a promissory note in the principal amount of $678, 797.94 (the "Note").[3] At this time, Spectra and RMP, along with two of Spectra's factoring clients, entered into another agreement (the "Intercreditor Agreement"), whereby RMP was allowed to take over Spectra's factoring agreements with the clients.[4]

In August of 2013, RMP informed Spectra that it was in default of all obligations to RMP under the various agreements with RMP.[5] RMP demanded repayment of all unpaid sums under the Agreement and Note, as well as costs and attorneys' fees.[6] Plaintiffs filed suit against RMP in Maricopa County Superior Court in October 2013.

The complaint asserts claims against RMP for fraud, negligent misrepresentation, breach of contract, and seeks a declaratory judgment relating to the Agreement, Guaranties, Note, and Intercreditor Agreement.[7] Specifically, Count I is a claim for fraud and alleges that RMP falsely represented to Spectra that it was out of compliance with the Agreement and that RMP knew its representations were false. Spectra alleges that as a result of RMP's fraudulent representations it executed the Note and subsequently has been forced to pay hundreds of thousands of dollars to RMP that were never actually due. Count II is a claim for declaratory relief, requesting that the court declare the Note and Guaranties void because they are not and have never been valid and binding obligations of Spectra or the Melillos. Count III is a claim for negligent misrepresentation and alleges that RMP provided Spectra with false information about Spectra's financial obligations under the Agreement, which resulted in the execution of the Note and payments thereunder. Count IV alleges that RMP materially breached the Agreement by not providing the financial services it agreed to provide and that as a result the court should declare that Spectra "no longer has any obligation to [RMP] under the Agreement" and that the Guaranties are no longer valid obligations of the Melillos. Count V is a claim for breach of contract and alleges that RMP breached its obligations under the Intercreditor Agreement.

RMP removed the action to federal court. Thereafter it filed the motion at hand requesting that Plaintiffs' complaint be dismissed for improper venue because the Agreement, from which all of the other agreements stem, and the Note contain a forum-selection clause requiring all claims to be litigated in the Supreme Court of Suffolk County, New York, if RMP so elects. RMP argues that by filing this motion, it is electing to have the claims litigated in New York state court. Alternatively, RMP requests that the court transfer this action to the Eastern District of New York pursuant to 28 U.S.C. ยง 1404. It argues that Plaintiffs are contractually obligated not to oppose any motion filed by RMP to dismiss or transfer venue.

III. STANDARD OF REVIEW

"A motion to dismiss premised on the failure of a plaintiff to initiate an action in the venue mandated by a forum selection clause is treated as a motion to dismiss under Federal Rule of Civil Procedure 12(b)(3)."[8] When reviewing a 12(b)(3) motion, the court need not accept the pleadings as true and may consider facts not included in the pleadings.[9]

Federal law governs the enforceability and interpretation of forum selection clauses.[10] Under federal law, forum selection clauses "are prima facie valid" and thus will be enforced absent a showing of unreasonableness.[11]

A forum selection clause is unreasonable if (1) its incorporation into the contract was the result of fraud, undue influence, or overweening bargaining power; (2) the selected forum is so gravely difficult and inconvenient that the complaining party will for all practical purposes be deprived of its day in court; or (3) enforcement of the ...

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