Court Opinion

ID: 4419623
Source: CourtListenerOpinion
Date Created: 2019-07-24 17:00:31.996041+00
Date Added: 2024-06-11T14:51:02.463779
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

GEMINI TECHNOLOGIES, INC.,               No. 18-35510
              Plaintiff-Appellant,
                                           D.C. No.
                 v.                     1:18-cv-00035-
                                             CWD
SMITH & WESSON CORP., a Delaware
corporation; AMERICAN OUTDOOR
BRANDS CORPORATION, a                       OPINION
Massachusetts corporation,
              Defendants-Appellees.

      Appeal from the United States District Court
                for the District of Idaho
      Candy W. Dale, Magistrate Judge, Presiding

         Argued and Submitted May 13, 2019
                Seattle, Washington

                  Filed July 24, 2019

 Before: Michael Daly Hawkins, William A. Fletcher,
         and Mark J. Bennett, Circuit Judges.

             Opinion by Judge W. Fletcher
2              GEMINI TECH. V. SMITH & WESSON

                            SUMMARY*

                    Forum Selection Clause

    The panel reversed the district court’s dismissal of an
action on the basis of a forum selection clause in the parties’
Asset Purchase Agreement.

    The panel applied the decision in Yei A. Sun v. Advanced
China Healthcare, Inc., 901 F.3d 1081 (9th Cir. 2018), which
was decided after the district court decision in this case, and
M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972).
The panel held that the district court abused its discretion in
enforcing the forum-selection clause that contravened the
strong public policy announced by Idaho Code § 29-110(1),
and was therefore unenforceable; and remanded so that the
district court could apply a traditional forum non conveniens
balancing analysis. The panel clarified that satisfaction of
Bremen’s public policy factor continues to suffice to render
a forum-selection clause unenforceable.

                             COUNSEL

Kim J. Trout (argued), Trout Law PLLC, Boise, Idaho, for
Plaintiff-Appellant.

Jason E. Prince (argued) and Brett C. Ruff, Holland & Hart
LLP, Boise, Idaho, for Defendants-Appellees.

    *
      This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
            GEMINI TECH. V. SMITH & WESSON                  3

                         OPINION

W. FLETCHER, Circuit Judge:

    Gemini Technologies, Inc. (“Gemtech”) is an Idaho-based
manufacturer of gun silencers. In 2017, Smith & Wesson
Corp. and parent company American Outdoor Brands Corp.
(collectively “Smith & Wesson”) offered to purchase
Gemtech’s assets. Gemtech accepted and entered into an
Asset Purchase Agreement with Smith & Wesson. The
Agreement contained a forum-selection clause requiring “any
action or proceeding arising out of or relating to this
Agreement” to be brought in Delaware.                Gemtech
subsequently sued Smith & Wesson for breach of the
Agreement in Idaho federal district court. The district court
enforced the forum-selection clause and dismissed the action.
On appeal, Gemtech argues that the forum-selection clause is
unenforceable because it contravenes the strong public policy
declared by Idaho Code § 29-110(1). Applying our decision
in Yei A. Sun v. Advanced China Healthcare, Inc., 901 F.3d
1081 (9th Cir. 2018) (“Advanced China Healthcare”),
decided after the district court ruled in this case, we agree.
We reverse and remand.

                       I. Background

   In January 2018, Gemtech filed a diversity action against
Smith & Wesson in the United States District Court for the
District of Idaho alleging breach of contract. In the Asset
Purchase Agreement, Smith & Wesson promised to make two
payments to Gemtech, a cash payment and an earn-out
payment. According to Gemtech’s complaint, Smith &
Wesson breached the Agreement in several material respects
4           GEMINI TECH. V. SMITH & WESSON

that “violated, nullified, and significantly impaired the cash
payments and the earn-out payments to Gemtech.”

    On February 21, 2018, Smith & Wesson moved to
dismiss the action because of the forum-selection clause in
the Agreement. That clause provides, in relevant part:

       Each party hereto irrevocably submits to the
       jurisdiction of the Circuit Court of the state of
       Delaware, in any action or proceeding arising
       out of or relating to this Agreement or any of
       the Collateral Agreements, and each party
       hereby irrevocably agrees that all claims in
       respect of any such action or proceeding must
       be brought and/or defended in such court.

Smith & Wesson argued that Gemtech’s action should be
dismissed on forum non conveniens grounds in accordance
with Atlantic Marine Construction Co., Inc. v. U.S. Dist.
Court for W. Dist. of Texas, 571 U.S. 49 (2013) (“Atlantic
Marine”).

    In Atlantic Marine, the Supreme Court addressed the
procedures available to a civil defendant seeking to enforce
a valid forum-selection clause. The Supreme Court held that
“the appropriate way to enforce a forum-selection clause
pointing to a state or foreign forum is through the doctrine of
forum non conveniens.” Id. at 60. Ordinarily, a district court
considering a forum non conveniens motion “must evaluate
both the convenience of the parties and various public-interest
considerations.” Id. at 62. When the parties’ contract
contains a valid forum-selection clause, however, a district
court must “adjust” its analysis. Id. at 63. The plaintiff then
“bears the burden” of establishing that transfer is
            GEMINI TECH. V. SMITH & WESSON                  5

unwarranted, and the district court “should not consider
arguments about the parties’ private interests.” Id. at 63–64.
In other words, “a district court should transfer the case
unless extraordinary circumstances unrelated to the
convenience of the parties clearly disfavor a transfer.” Id.
at 52.

    Gemtech argued that the district court should not enforce
the forum-selection clause under Atlantic Marine because the
clause is invalid and unenforceable. Surprisingly, Gemtech
did not rely on the fact that “Circuit Court of the state of
Delaware” is a misnomer; there is no such court in Delaware.
We thus do not address that argument on appeal. Instead,
Gemtech has consistently argued that the forum-selection
clause does not control because it contravenes the strong
public policy declared by Idaho Code § 29-110(1), which
provides:

       Every stipulation or condition in a contract, by
       which any party thereto is restricted from
       enforcing his rights under the contract in
       Idaho tribunals, or which limits the time
       within which he may thus enforce his rights,
       is void as it is against the public policy of
       Idaho. Nothing in this section shall affect
       contract provisions relating to arbitration so
       long as the contract does not require
       arbitration to be conducted outside the state of
       Idaho.

Idaho Code § 29-110(1) (emphasis added). Gemtech cites to
M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972)
(“Bremen”), for the proposition that “[a] contractual choice-
of-forum clause should be held unenforceable if enforcement
6            GEMINI TECH. V. SMITH & WESSON

would contravene a strong public policy of the forum in
which suit is brought, whether declared by statute or by
judicial decision.”

     The district court concluded that the forum-selection
clause is valid and enforceable. The court reasoned that the
Agreement’s forum-selection clause is valid because it is not
the product of “fraud, duress, misrepresentation, or other
misconduct” under “general contract law” and enforceable
because there are “no exceptional circumstances” precluding
its enforcement. The district court did not give any weight to
Idaho Code § 29-110(1) or engage in a Bremen public policy
analysis. The court justified its approach by explaining that
“Gemtech must point to something more than just the statute
itself to warrant ignoring the forum selection clause, because
if Idaho Code § 29-110(1) was determinative, striking down
the forum selection clause would be routine rather than
extraordinary, standing Atlantic Marine on its head.” The
district court then dismissed the action in accordance with
Atlantic Marine. Gemtech timely appealed. We have
jurisdiction under 28 U.S.C. § 1291.

                        II. Discussion

     “We review a district court’s dismissal of a complaint for
failure to comply with a valid and enforceable forum-
selection clause for abuse of discretion.” Advanced China
Healthcare, 901 F.3d at 1086 (citing Doe 1 v. AOL LLC,
552 F.3d 1077, 1081 (9th Cir. 2009) (per curiam)). Gemtech
argues (a) that the district court abused its discretion when it
declined to consider Gemtech’s public policy argument and
(b) that the forum-selection clause is unenforceable because
it contravenes Idaho public policy. In light of our decision in
Advanced China Healthcare, we agree as to both points.
             GEMINI TECH. V. SMITH & WESSON                   7

        A. The District Court Abused its Discretion

     Roughly forty years before Atlantic Marine, the Supreme
Court held in Bremen that a forum-selection clause is “prima
facie valid” and “should control absent a strong showing that
it should be set aside.” 407 U.S. at 10, 15. Specifically, the
Court held that a district court should enforce a forum-
selection clause unless the party challenging the clause can
show “that enforcement would be unreasonable and unjust, or
that the clause was invalid for such reasons as fraud or
overreaching.” Id. at 15. The Court added that a contractual
forum-selection clause is “unenforceable if enforcement
would contravene a strong public policy of the forum in
which suit is brought, whether declared by statute or by
judicial decision.” Id.

    The district court effectively concluded that Bremen’s
public policy factor is no longer good law after Atlantic
Marine. Atlantic Marine does not support that conclusion.
The Court in Atlantic Marine hardly discussed Bremen. To
the extent that it did, it reaffirmed Bremen’s core holding that
“a valid forum-selection clause [should be] given controlling
weight in all but the most exceptional cases.” Atlantic
Marine, 571 U.S. at 63 (alteration in original) (quoting
Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 33 (1988)
(Kennedy, J., concurring) (citing to Bremen, 407 U.S. at 10)).
Unsurprisingly then, our sister circuits have consistently held
that Bremen continues to provide the law for determining the
validity and enforceability of a forum-selection clause. See,
e.g., Azima v. RAK Inv. Auth., — F.3d —, 2019 WL 2508987,
at *3 (D.C. Cir. 2019) (“We presume that a mandatory forum-
selection clause is legally valid and enforceable absent a
‘strong showing’ [under one of the Bremen factors].”
(internal quotation omitted)); Barnett v. DynCorp Int’l,
8            GEMINI TECH. V. SMITH & WESSON

L.L.C., 831 F.3d 296, 304 (5th Cir. 2016) (considering
“whether the clause’s enforcement would contravene a strong
public policy of Texas”); Martinez v. Bloomberg LP,
740 F.3d 211, 228 (2d Cir. 2014) (“We decline to enforce a
forum selection clause under Bremen if . . . enforcement
contravenes a strong public policy of the forum in which suit
is brought[.]” (internal quotation omitted)); see also Reading
Health Sys. v. Bear Sterns & Co., 900 F.3d 87, 97 (3d Cir.
2018) (“Nothing in Atlantic Marine disturbs the long-
standing body of law clarifying that a court need not transfer
an action based on a forum-selection clause if the clause is
invalid (i.e., an enforceability challenge).”).

     After the district court ruled, we issued our opinion in
Advanced China Healthcare. Like our sister circuits, we held
that Bremen remains good law. We noted that “Atlantic
Marine provides little guidance . . . regarding what constitutes
an ‘exceptional reason’ or ‘extraordinary circumstances’ in
which courts should not give controlling weight to a valid
forum-selection clause.” 901 F.3d at 1088. We therefore
turned to Bremen’s holding that a forum-selection clause is
“controlling unless the plaintiff made a strong showing that:
(1) the clause is invalid due to ‘fraud or overreaching,’
(2) ‘enforcement would contravene a strong public policy of
the forum in which suit is brought, whether declared by
statute or by judicial decision,’ or (3) ‘trial in the contractual
forum will be so gravely difficult and inconvenient that [the
litigant] will for all practical purposes be deprived of his day
in court.’” Id. (alteration in original) (emphasis added)
(quoting Bremen, 407 U.S. at 15, 18).

    The district court did not consider Gemtech’s public
policy argument under factor (2). This failure was an abuse
of discretion. See Casey v. Albertson’s Inc., 362 F.3d 1254,
             GEMINI TECH. V. SMITH & WESSON                   9

1257 (9th Cir. 2004) (“A district court abuses its discretion if
it does not apply the correct law[.]”). Applying Advanced
China Healthcare and Bremen, we conclude that Gemtech’s
public policy argument has merit, for the reasons discussed
below.

     B. The Forum-Selection Clause is Unenforceable

    In Advanced China Healthcare, Yei Sun, Liping Sun, and
Haiming Sun entered into two Preference Share Purchase
Agreements after Alicia Kao persuaded them to invest
$2.8 million in her company, Advanced China Healthcare.
901 F.3d at 1084–85. The meeting between the Suns and Kao
occurred in Washington state, but the Agreements contained
a forum-selection clause requiring adjudication of all disputes
in California. Id. The Suns later sued Kao and Advanced
China Healthcare for fraud in Washington district court under
the Washington State Securities Act (“WSSA”). Id. at 1085.
The district court dismissed the complaint based on the
forum-selection clause, and on appeal, the Suns argued that
the forum-selection clause was “not valid and enforceable
because their action under the WSSA embodies an important
public policy that cannot be waived.” Id. at 1086. As
evidence of Washington’s public policy, the Suns relied on
two Washington court cases as well as the antiwaiver
provision in the WSSA, which provides that “[a]ny condition,
stipulation, or provision binding any person acquiring any
security to waive compliance with any provision of this
chapter or any rule or order hereunder is void.” Id. a
1089–90 (quoting Wash. Rev. Code § 21.20.430(5)). We
affirmed on appeal because neither of the Washington cases
that the Suns cited was “sufficiently on point” and because
we had previously held that “an antiwaiver provision by itself
does not supersede a forum-selection clause.” Id. at 1090. In
10           GEMINI TECH. V. SMITH & WESSON

short, although we reaffirmed the continued vitality of
Bremen’s public policy factor, we rejected the Suns’s public
policy argument because they did not identify a Washington
“statute or judicial decision that clearly states such a strong
public policy.” Id. (citing to Doe 1, 552 F.3d at 1078–79,
1081).

    Gemtech, in contrast, has identified an Idaho statute that
clearly states a strong public policy. Idaho Code § 29-110(1)
provides: “Every stipulation or condition in a contract, by
which any party thereto is restricted from enforcing his rights
under the contract in Idaho tribunals . . . is void as it is against
the public policy of Idaho.” Unlike the antiwaiver statute in
Advanced China Healthcare, the plain language of Idaho
Code § 29-110(1) declares a strong “public policy of Idaho.”
This clear statutory declaration suffices under Bremen’s
public policy factor, which requires that the policy be
declared “by statute or by judicial decision.” 407 U.S. at 15
(emphasis added). Smith & Wesson does not dispute that
Idaho Code § 29-110(1) encompasses the forum-selection
clause at issue here.

    A final issue is whether satisfaction of Bremen’s public
policy factor suffices to render the forum-selection clause
unenforceable. Prior to Atlantic Marine, we treated a strong
showing under any one of the Bremen factors as sufficient
grounds for not enforcing a forum-selection clause. For
example, in Doe 1, 552 F.3d 1077, we held that a forum-
selection clause was unenforceable against California
residents bringing class action claims under California’s
Consumers Legal Remedies Act (“CLRA”) because a
California Court of Appeal had declared that such a clause
contravenes “California public policy against consumer class
action waivers and waivers of consumer rights under the
            GEMINI TECH. V. SMITH & WESSON                11

CLRA[.]” Id. at 1084. In Advanced China Healthcare, we
did not unequivocally decide whether Atlantic Marine altered
the weight to be given to the Bremen factors. We therefore
take the opportunity to clarify that satisfaction of Bremen’s
public policy factor continues to suffice to render a forum-
selection clause unenforceable. Bremen held that “[a]
contractual choice-of-forum clause should be held
unenforceable if enforcement would contravene a strong
public policy of the forum in which suit is brought, whether
declared by statute or by judicial decision.” 407 U.S. at 15
(emphasis added). We have found nothing in Atlantic Marine
that compels a different rule.

    Accordingly, we hold that the forum-selection clause in
the Agreement between Gemtech and Smith & Wesson is
unenforceable under Advanced China Healthcare and Bremen
because enforcement would contravene a strong public policy
of Idaho, as declared by Idaho Code § 29-110(1).

    Our holding does not, as the district court suggests,
“stand[] Atlantic Marine on its head” by making the
invalidation of forum-selection clauses “routine rather than
extraordinary.” As a preliminary matter, we are aware of
only four other states—Montana, North Dakota, Oklahoma,
and North Carolina—that have statutes similar to Idaho’s.
See Mont. Code Ann. § 28-2-708; N.D. Cent. Code Ann. § 9-
08-05; Okla. Stat. Ann. tit. 15, § 216; N.C. Gen. Stat. Ann.
§ 22B-3. We express no opinion on whether these statutes
would render a forum-selection clause unenforceable. But
either way, successful public policy challenges to forum-
selection clauses based on statutes similar to Idaho’s are
bound to be far from routine.
12          GEMINI TECH. V. SMITH & WESSON

     The main flaw with the district court’s analysis, however,
is that it disregards part of Bremen’s holding. Even if we had
concluded (which we have not) that Atlantic Marine’s
reasoning undermines Bremen, only the Supreme Court has
the prerogative to overrule or modify Bremen. See Rodriguez
de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477, 484
(1989). Atlantic Marine did not overrule Bremen. As we
held in Advanced China Healthcare, Bremen is readily
harmonized with Atlantic Marine because Bremen provides
guidance regarding the “extraordinary circumstances” in
which a forum-selection clause will not control. Advanced
China Healthcare, 901 F.3d at 1088.

    We hold that the forum-selection clause at issue here
contravenes the strong public policy announced by Idaho
Code § 29-110(1) and is therefore unenforceable. We reverse
and remand so that the district court may apply a traditional
forum non conveniens balancing analysis.

     REVERSED and REMANDED with instructions.