Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_05-cv-00332/USCOURTS-caed-1_05-cv-00332-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

McKESSON MEDICAL-SURGICAL

MINNESOTA SUPPLY, INC., a

Minnesota Corporation,

Plaintiff,

v.

ADDUS HEALTHCARE, INC., an

Illinois Corporation; MHCS,

INCORPORATED, a California

Corporation, doing business as

MEDICAL HOME CARE SERVICES,

Defendants.

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1:05-cv-00332 OWW DLB

MEMORANDUM DECISION AND

ORDER GRANTING DEFENDANT

MHCS’s MOTION TO DISMISS

COMPLAINT PURSUANT TO FED.

R. CIV. P. 12(b)(3)

I. INTRODUCTION

Defendant MHCS, INCORPORATED, doing business as MEDICAL HOME

CARE SERVICES, (“MHCS”), moves to dismiss the complaint of

Plaintiff McKESSON MEDICAL-SURGICAL MINNESOTA SUPPLY, INC.,

(“Plaintiff”), for improper venue pursuant to Fed. R. Civ. P.

12(b)(3) and 28 U.S.C. § 1406(a). MHCS argues there is an

enforceable mandatory forum selection clause in the governing

agreements that mandates the state courts of Minnesota as the

proper forum. Plaintiff opposes the motion, and argues that the

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applicable forum selection clause is unilateral, and requires

that only MHCS (and not Plaintiff) submit to venue and

jurisdiction in Minnesota. In the alternative, Plaintiff argues

that the clause allows the federal or state courts of Minnesota

as proper venue and that transfer to the district court of

Minnesota is the proper remedy, rather than dismissal. 

II. PROCEDURAL AND FACTUAL BACKGROUND

This action arises out of Plaintiff’s complaint that MHCS

and ADDUS HEALTHCARE, INC. (collectively, “Defendants”), failed

to pay for medical and surgical supplies in breach of their

credit agreements with Plaintiff. Plaintiff is a nationwide

supplier of medical and surgical equipment to the healthcare

industry. (Doc. 1, Compl. ¶ 7). Plaintiff is a corporation

incorporated under the laws of the State of Minnesota with its

principal place of business in Virginia. (Id. at ¶ 3). 

Plaintiff does business nationwide. (Id. at ¶ 7).

According to Plaintiff, Defendants are home health care

providers. Defendant MHCS is a corporation incorporated under

the laws of the State of California with its principal place of

business in California. (Id. at ¶ 5). Addus Healthcare, Inc.

(“Addus”) is a corporation incorporated under the laws of the

State of Illinois with its principal place of business in

Illinois. (Id. at ¶ 4). Plaintiff alleges that both MHCS and

Addus were, during all times relevant to this litigation,

authorized to conduct business in California and that they

maintain regional offices in Modesto, California, and in other

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locations in California. (Id. at ¶¶ 4, 5). Plaintiff further

alleges that Addus was and is a shareholder, promoter and/or

beneficial owner of MHCS; the separate existence of the Defendant

corporations is a fiction; MHCS was inadequately capitalized; and

the funds of the Defendant corporations were commingled. (Id. at

¶¶ 8-11).

On or about December 12, 2002, MHCS entered into a written

contract pursuant to which Plaintiff agreed to allow MHCS to

purchase medical and surgical supplies from Plaintiff on credit. 

(Id. at ¶ 13, Ex. B (“MHCS Agreement”)). The agreement is titled

“Application for Credit.” On or about October 18, 2002,

Plaintiff entered into an identical written contract with Addus. 

(Id. at ¶ 12, Ex. A (“Addus Agreement”). Plaintiff’s claims

arise out of Addus and MHCS’s failure to pay for medical supplies

under these agreements. Both the Addus Agreement and the MHCS

Agreement contain the following language:

The Applicant agrees that the laws of Minnesota shall govern

all transactions between McKesson and the Applicant, that

exclusive venue and jurisdiction of any dispute or suit

arising between McKessen and the Applicant shall lie within

the courts of the State of Minnesota, and the Applicant

hereby consents to the jurisdiction of the Minnesota courts

in any such dispute or suit.

(Id. at Exs. A, B).

Plaintiff filed its complaint against Defendants on

March 9, 2005. (Doc. 1, Compl.). Plaintiff brings six claims

against Defendants: (1) Breach of Contract for Sale of Goods;

(2) Open Account; (3) Account Stated; (4) Goods Sold and

Delivered; (5) Quantum Valebant; and (6) Conversion. (See id.). 

MHCS moves to dismiss Plaintiff’s complaint pursuant to Fed.

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1 Defendant Addus Healthcare, Inc., did not file a motion to

dismiss. Addus filed only a “Request for Judicial Notice in

Support of Motion to Dismiss Complaint” and a Reply. (Doc. 8,

Addus’ Request for Judicial Notice, filed April 4, 2005; Doc. 15,

Addus Reply, filed May 2, 2005). While Plaintiff’s opposition

references a motion to dismiss by Addus, there is no motion by

Addus properly filed in this Court. The only motion to dismiss

properly filed in this court was filed by MHCS. (Doc. 7). Only

MHCS’s motion will be considered.

2 MHCS states in its brief that venue is improper in the

“Northern” District of California. (Doc. 7, MHCS’s Mem. 3:4-5;

6:3-4). This case was filed in the Eastern District of

California. The Court will construe MHCS’s argument to be that

venue is improper in the Eastern District of California.

4

R. Civ. P. 12(b)(3) and 28 U.S.C. § 1406(a).1 (Doc. 7, MHCS’s

Mem.). MHCS argues that the forum selection clause mandates that

venue for any dispute between MHSC and Plaintiff is properly laid

in the Minnesota state courts. MHCS argues that venue is

improper in the Eastern District of California and that this case

should be dismissed.2 MHCS argues that the proper remedy is

dismissal. 

Plaintiff opposes and argues that the forum selection clause

in its Application for Credit is unilateral, and applies only to

suits brought by the applicant (in this case, the Defendnats). 

(Doc. 11, Pl.’s Opp., filed April 25, 2005). Plaintiff argues

that the clause does not preclude it from bringing suit in a

forum other than Minnesota courts, as long as venue is proper

under the general venue statute, 28 U.S.C. § 1391. Plaintiff

contends that venue is proper in the Eastern District of

California under Section 1391. In the alternative, Plaintiff

argues that the clause allows venue in either the federal or

state courts of Minnesota and that the proper remedy is not

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dismissal but is instead transfer to the District of Minnesota

pursuant to 28 U.S.C. § 1406(a). 

Oral argument was heard on May 9, 2005. Suzanne M. Burke

appeared on behalf of Plaintiff. Thomas J. D’Amato appeared on

behalf of Defendant Addus Healthcare and specially appeared on

behalf of Defendant MHCS.

III. LEGAL STANDARD

A. Motion to Dismiss for Improper Venue Pursuant to

28 U.S.C. § 1406(a) Compared With Motion to Transfer

Venue Pursuant to 28 U.S.C. § 1404(a).

28 U.S.C. § 1406(a) provides that a district court shall

dismiss (or, in its discretion, transfer) a case that is

improperly venued:

The district court of a district in which is filed a case

laying venue in the wrong division or district shall

dismiss, or if it be in the interest of justice, transfer

such a case to any district or division in which it could

have been brought.

“Once venue is challenged, the burden is on the plaintiff to show

that venue is proper.” Whiteman v. Resort, 1999 WL 163044 at *1

(N.D. Cal. 1999) (citing Piedmont Label Co. v. Sun Garden Packing

Co., 598 F.2d 491, 496 (9th Cir. 1979)); Nissan Motor Co. v.

Nissan Computer Corp., 89 F. Supp. 2d 1154, 1161 (C.D. Cal. 2000)

(“Although there is some disagreement, most courts hold that the

plaintiff bears the burden of establishing proper venue.”).

If venue is proper in more than one forum, a party may move

to transfer the case pursuant to 28 U.S.C. § 1404(a) based on

convenience of the parties. 28 U.S.C. § 1404(a) states: 

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3 28 U.S.C. § 1391(a) provides: 

A civil action wherein jurisdiction is founded only on

diversity of citizenship may, except as otherwise provided

by law, be brought only in (1) a judicial district where any

defendant resides, if all defendants reside in the same

State, (2) a judicial district in which a substantial part

of the events or omissions giving rise to the claim

occurred, or a substantial part of property that is the

subject of the action is situated, or (3) a judicial

district in which any defendant is subject to personal

jurisdiction at the time the action commenced, if there is

no district in which the action may otherwise be brought.

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For the convenience of the 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. 

Under § 1404(a), the party seeking transfer bears the burden of

showing that the balance of convenience clearly favors transfer. 

Futures Trading Comm'n v. Savage, 611 F.2d 270, 279 (9th Cir.

1979). Defendant has not raised § 1404(a).

B. Forum Selection Clause

Venue is ordinarily governed by 28 U.S.C. § 1391.3 However,

parties may use a forum selection clause in a contract to

designate the forum where litigation is to take place. See,

e.g., Carnival Cruise Lines v. Shute, 499 U.S. 585 (1991);

Spradlin v. Lear Siegler Mgt. Services, 926 F.2d 865, 866 (9th

Cir. 1991); TAAG Linhas Aereas de Angola v. Transamerica

Airlines, 915 F.2d 1351 (9th Cir. 1990). Litigation commenced in

a forum other than that selected may be subject to dismissal for

improper venue. Id. 

Fed. R. Civ. P. 12(b)(3) governs a motion to dismiss

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premised on the enforcement of a forum selection clause. Argueta

v. Banco Mexicano, 87 F.3d 320, 324 (9th Cir. 1996); see also

Offshore Sportswear, Inc. v. Vuarnet Int’l, B.V., 114 F.3d 848,

851 (9th Cir. 1997) (“We treat a dismissal based on a forum

selection clause like a dismissal for improper venue under Rule

12(b)(3).”). In deciding a motion to dismiss under Rule 12(b)(3)

based on a forum selection clause, the pleadings are not accepted

as true, and the court can consider facts outside of the

pleadings. Argueta, 87 F.3d at 324; see generally Carnival

Cruise Lines v. Shute, 499 U.S. 585 (1991).

A forum selection clause is “prima facie valid” and should

not be set aside unless the party challenging enforcement

demonstrates that the clause is “invalid” or that its enforcement

would be “unreasonable.” M/S Bremen v. Zapata Off-Shore Co., 407

U.S. 1, 10 (1972); see also Carnival Cruise Lines, 499 U.S. at

589. In 1996, the Ninth Circuit followed M/S Bremen, enforcing a

forum selection clause absent evidence establishing: 

fraud, undue influence, overwhelming bargaining power, or

such serious inconvenience in litigating in the selected

forum so as to deprive that party of a meaningful day in

court.

Argueta, 87 F.3d at 325. Plaintiff does not argue that the forum

selection clause here (which is a clause from its own contract)

is invalid or unreasonable. Plaintiff does not argue the

presence of fraud, undue influence, or such serious inconvenience

that litigating in Minnesota would deprive Plaintiff of a fair

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4 The issues here instead involve contract interpretation. 

Specifically, whether the clause is unilateral, whether the

clause is mandatory or permissive, and whether the clause

mandates the state or federal courts of Minnesota.

8

trial.4

A forum selection clause will be enforced where venue is

specified with mandatory language. Docksider, Ltd. v. Sea

Technology, Ltd., 875 F.2d 762, 764 (9th Cir. 1989). When a

forum selection clause clearly designates the forum chosen as the

exclusive forum, it is mandatory. Northern Cal. Dist. Council of

Laborers v. Pittsburg-Des Moines Steel Co., 69 F.3d 1034, 1037

(9th Cir. 1995). However, if the language of the forum selection

clause is not exclusive and does not preclude suit elsewhere,

then the forum selection clause is permissive. Hunt Wesson

Foods, Inc. v. Supreme Oil Co., 817 F.2d 75, 77 (9th Cir. 1987). 

In Pelleport Investors, 741 F.2d at 275, the Ninth Circuit

held that the following language of the forum selection clause

was mandatory because it expressly mandated a particular forum: 

Exhibitor [Budco] expressly agrees that any and all disputes

arising out of or in connection with this Agreement shall be

litigated only in the Superior Court for Los Angeles,

California (and in no other), and Exhibitor hereby consents

to the jurisdiction of said court.

In Docksider, 875 F.2d at 763, the Ninth Circuit held that

the following language of the forum selection clause was

mandatory:

This agreement shall be deemed to be a contract made under

the laws of the State of Virginia, United States of America,

and for all purposes shall be interpreted in its entirety in

accordance with the laws of said State. Licensee hereby

agrees and consents to the jurisdiction of the courts of the

State of Virginia. Venue of any action brought hereunder

shall be deemed to be in Gloucester County, Virginia. 

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In Hunt, 817 F.2d at 77, the Ninth Circuit found the

following language was not exclusive, and thus, not mandatory:

Buyer and Seller expressly agree that the laws of the State

of California shall govern the validity, construction,

interpretation and effect of this contract. The courts of

California, County of Orange, shall have jurisdiction over

the parties in any action at law relating to the subject

matter of the interpretation of this contract.

The Court reasoned that the term “shall have jurisdiction,”

without additional language indicating exclusivity, was

permissive. Id.

In Pittsburg-Des Moines Steel, 69 F.3d at 1036, the Ninth

Circuit held the following forum selection clause was not

mandatory:

[a] decision of the Board of Adjustment...or the decision of

a permanent arbitrator shall be enforceable by a petition to

confirm an arbitration award filed in the Superior Court of

the City and County of San Francisco, State of California.

Again, the Court reasoned there was no additional language

mandating the only proper venue was San Francisco. See id.

B. Remedy for Improper Venue

28 U.S.C. § 1406(a) provides that a district court may

either dismiss a case for improper venue, or it may, in its

discretion and in the interest of justice, “transfer such a case

to any district or division in which it could have been brought.” 

Transfer pursuant to § 1406(a) is not proper unless the court has

jurisdiction over the subject matter of the action. Personal

jurisdiction over the defendants is not required. Goldlawr, Inc.

v. Heiman, 369 U.S. 463 (1962) (§ 1406 is broad enough to

authorize transfer whether the court in which action was filed

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had personal jurisdiction over the defendants or not); Miller v.

Hambrick, 905 F.2d 259, 261 (9th Cir. 1990) (citing Goldlawr as

authority). While a case may be dismissed for improper venue,

transfer is the preferred remedy. See Abrams Shell v. Shell Oil

Co., 165 F. Supp. 2d 1096, 1103 (C.D. Cal. 2001).

IV. ANALYSIS

A. Proper Venue Under the Forum Selection Clause

The parties do not dispute that the forum selection clause

here is enforceable. Plaintiff does not argue that the Agreement

containing the clause was entered into due to fraud or undue

influence, or that enforcement would be unreasonable. Plaintiff

can hardly make such an argument, considering that the Agreement

was provided and drafted by Plaintiff and/or its attorneys. 

Instead, the parties’ dispute centers around basic contract

interpretation. Plaintiff argues that the forum selection clause

is unilateral, and applies only to “The Applicants,” in this case

the Defendants. Plaintiff argues the clause requires Defendants

to bring suit in a Minnesota court, but that the same requirement

does not apply to Plaintiff. 

A forum selection clause with mandatory language “mandates

that the designated courts are the only ones which have

jurisdiction.” Hunt, 817 F.2d at 77-8. A forum selection clause

is permissive if it does not preclude suit elsewhere with express

language. Id. Permissive language will not stop the party

opposing the forum selection clause from suing elsewhere. 

Kachal, Inc. v. Menzie, 738 F. Supp. 371, 373 (D. Nev. 1990).

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“A primary rule of [contract] interpretation is that ‘[t]he

common or normal meaning of language will be given to the words

of a contract unless circumstances show that in a particular case

special meanings should be attached to it.’” Hunt, 817 F.2d at

77 (quoting 4 S. Williston, A Treatise on the Law of Contracts §

618 (W. Jaeger 3d ed. 1961)). The forum selection clause at

issue here states: 

The Applicant agrees that the laws of Minnesota shall govern

all transactions between McKesson and the Applicant, that

exclusive venue and jurisdiction of any dispute or suit

arising between McKessen and the Applicant shall lie within

the courts of the State of Minnesota, and the Applicant

hereby consents to the jurisdiction of the Minnesota courts

in any such dispute or suit. 

(Doc. 1, Compl. Exs. A, B (emphasis added)).

The plain meaning of the phrases “exclusive venue” and “any

dispute or suit” is that venue for any dispute between the

parties lies exclusively in Minnesota. The forum selection

clause at issue here is mandatory because it precludes suit in

any forum other “the courts of the State of Minnesota.” 

Plaintiff’s interpretation of the language “The Applicant

agrees...” as unilateral would negate the exclusive, mandatory

forum selection clause, which goes on to cover “any dispute or

suit arising between McKesson and the Applicant.” The clause

does not state that it only applies to disputes initiated by the

Applicant, nor does it exclude disputes raised by McKesson. 

Even if the language were not so clear, any ambiguity would

be resolved against Plaintiff. Another basic rule of contract

interpretation is that “where language is ambiguous, the court

should construe the language against the drafter of the

contract.” Hunt, 817 F.2d at 78. The credit application (i.e.,

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the Agreement) that contains the forum selection clause here was

drafted by Plaintiff. Construing the language against Plaintiff,

the clause is bilateral and applies to all parties to the

contract.

Venue is not proper in the Eastern District of California

pursuant to the forum selection clause in the agreement knowingly

and voluntarily entered into by the parties. Defendant MHCS’s

Motion to Dismiss Plaintiff’s Complaint for improper venue

pursuant to Fed. R. Civ. P. 12(b)(3) and 28 U.S.C. § 1406(a) is

GRANTED without prejudice.

B. Whether Dismissal or Transfer is the Appropriate Remedy

The next issue disputed by the parties is whether the

appropriate remedy here is dismissal or transfer. MHCS has not

requested transfer and moves only for dismissal. However,

Plaintiff argues that if venue is improper, this case should be

transferred instead of dismissed. Transfer pursuant to § 1406(a)

is within the discretion of the court. A § 1406(a) transfer is

not proper unless the court has jurisdiction over the subject

matter of the action. Personal jurisdiction over the defendants

is not required. Goldlawr, Inc. v. Heiman, 369 U.S. 463 (1962). 

Subject matter jurisdiction exists in this case based on

diversity of citizenship. 

Resolution of the issue of appropriate remedy hinges once

again on contract interpretation. If the clause designates any

court in Minnesota, including the federal courts, then transfer

is within the court’s discretion. Defendant argues that the

appropriate remedy is dismissal because the forum selection

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clause provides that venue is proper exclusively in the state (as

opposed to federal) courts of the State of Minnesota. Plaintiff

argues that language similar to that contained in the forum

selection clause here has been interpreted to mean both the state

and federal courts, and that transfer is therefore appropriate. 

(Pl.’s Opp. 6).

The clause states: “exclusive venue and jurisdiction of any

dispute or suit arising between McKessen and the Applicant shall

lie within the courts of the State of Minnesota, and the

Applicant hereby consents to the jurisdiction of the Minnesota

courts in any such dispute or suit.” (Doc. 1, Compl. Exs. A, B

(emphasis added)). By its express terms, the clause does not

state that the venue shall lie within the “state” or “federal”

courts of the State of Minnesota. 

The cases Plaintiff cites do not help resolve the ambiguity

because the language at issue in those cases is different from

the language at issue here. Flake v. Medline Indus., Inc., 882

F. Supp. 947, 952 (E.D. Cal. 1995) (holding forum selection

clause not limited to Illinois state courts where forum selection

clause provided disputes shall be resolved “in courts sitting

within Illinois”); Basicomputer Corp. v. Scott, 973 F.2d 507, 510

(6th Cir. 1992) (holding forum selection clause not limited to

Ohio state courts where agreement provided disputes be litigated

“in courts in the State of Ohio”). Here, the clause does not

provide that disputes shall be litigated in “courts sitting

within Minnesota” or in “courts in the state of Minnesota.” 

Instead, it provides that disputes shall be litigated in the

“courts of the state of Minnesota” and later refers to the

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“Minnesota courts.”

The Eastern District of California is an improper venue and

this case cannot proceed here. The forum selection clause in the

parties’ agreement is ambiguous as to whether venue lies in the

state and/or federal courts of Minnesota. The interests of

justice are better served by leaving that question for resolution

to the Minnesota courts. Dismissal is the more appropriate

remedy here.

V. CONCLUSION

For all the reasons discussed above, MHCS’s Motion to

Dismiss based on the forum selection clause in the Application

for Credit is GRANTED without prejudice.

MHCS’s counsel shall submit a form of order in conformity

with this decision within five (5) days following date of

electronic service of this decision.

SO ORDERED. 

DATED: May _16__, 2005. 

/s/ OLIVER W. WANGER

______________________________

 Oliver W. Wanger

UNITED STATES DISTRICT JUDGE

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