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Run Them Sweet, LLC v. CPA Global Ltd.

United States District Court, E.D. Virginia, Alexandria Division

December 15, 2016

RUN THEM SWEET, LLC, Plaintiff,
v.
CPA GLOBAL LIMITED, et al, Defendants.

          MEMORANDUM OPINION

          T. S. Ellis, III Judge

         At issue on a threshold partial dismissal motion in this transferred breach-of-contract and related tort and unjust enrichment case is whether a contractual choice-of-law provision that selects Virginia law to govern and construe the contract's conditions also covers tort and unjust enrichment claims related to the contract and contract performance. Defendants contend that Virginia law governs not only plaintiffs breach-of-contract claim, but also tort and unjust enrichment claims related to the contract, and thus the choice-of-law provision requires the dismissal of plaintiff's related tort and unjust enrichment claims for failure to state a claim under Virginia law. Plaintiff, in response, contends that the choice-of-law provision is limited to its breach-of-contract claim, and does not apply to its tort and unjust enrichment claims, and thus plaintiffs tort and unjust enrichment claims should be permitted to proceed.

         I.

         The facts pertinent to defendants' motion to dismiss are derived from the complaint and the contract and may be succinctly stated as follows.

         Plaintiff Run Them Sweet, LLC is a medical diagnostics company headquartered in San Francisco, California. Defendant CPA Global Limited, LLC is an intellectual property management company that monitors and renews clients' patents registered in foreign countries to ensure that the clients' patents are not lost or deemed abandoned. This defendant is organized under the laws of Jersey, Channel Islands, and is also headquartered there. Co-defendant CPA Global North America, LLC, CPA Global Limited, LLC's U.S. affiliate, is a Delaware company headquartered in Alexandria, Virginia. CPA Global Limited, LLC and CPA Global North America, LLC are collectively referred to herein as "defendants." Plaintiff, the owner of a number of foreign patents, entered into a "Renewal Services Agreement" (the "Agreement") with defendants wherein defendants agreed to renew and maintain current plaintiffs foreign patents in exchange for fixed fees. The Agreement sets forth the applicable fee structure, which includes not only fixed fees per patent, but also "country charges, " the charges ostensibly charged by foreign nations. Particularly pertinent here is paragraph 12 of the Agreement, which is entitled "Governing Law" and contains the parties' choice-of-law and forum-selection provisions:

These conditions and any contract made under them shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia, United States of America, with the understanding that any legal action taken regarding this Agreement shall be brought in a U.S. District Court located in the Commonwealth of Virginia.

         This action, originally filed in the United States District Court for the Northern District of California, alleges three claims: (1) breach of contract, (2) unjust enrichment, and (3) a violation of California's Business and Professions Code § 17200, which prohibits unfair or fraudulent business practices. Specifically, plaintiffs breach-of-contract claim alleges that defendants (i) overcharged plaintiff for the patent renewal services, (ii) invoiced plaintiff in an "opaque" manner, and (iii) concealed certain types of fees. Run Them Sweet, LLC v. CPA Glob. Ltd, 1:16- cv-1347 (E.D. Va. June 29, 2016) (Complaint at ¶ 57). Plaintiffs unjust enrichment claim similarly alleges that defendants' alleged overcharging unjustly enriched defendants. Likewise, plaintiffs California tort claim alleges that defendants' overcharging, opaque invoices, and concealment of fees were unfair and fraudulent business practices. Also noteworthy is that plaintiff seeks to bring those claims on behalf of a proposed class of all persons or entities who have entered into an Agreement with defendants.

         Defendants filed a motion in the Northern District of California to transfer this case to the Eastern District of Virginia pursuant to 28 U.S.C. § 1404(a), arguing that the Agreement's forum-selection clause is valid and must be given effect. The district court in California agreed that the forum-selection clause is valid and thus granted the motion to transfer, rejecting plaintiffs argument that transferring the action to this district would contravene California public policy by precluding plaintiff from bringing the case as a class action.

         Following transfer, defendants filed the instant partial motion to dismiss pursuant to Rule 12(b)(6), Fed. R. Civ. P., contending that the Agreement's choice-of-law provision is valid and that Virginia law governs all three claims asserted in the complaint. Accordingly, defendants argue that plaintiffs California tort claim must be dismissed because California law does not govern this action, and that plaintiffs unjust enrichment claim must also be dismissed because Virginia law precludes such a claim where, as here, the parties have an express contract. Plaintiff, for its part, contends that the choice-of-law provision governs only its breach-of-contract claim, and hence does not apply to plaintiffs California tort or unjust enrichment claims, both of which, according to plaintiff, sound in tort. In the alternative, plaintiff requests leave to amend its complaint to add additional claims under Virginia law.

         II.

         To begin with, the parties correctly agree on the threshold question, namely whether the parties' contractual forum-selection and choice-of-law provisions displace the rule of Van Dusen v. Barrack requiring a transferee forum to apply the law of the transferor forum. 376 U.S. 612, 639 (1964). As the parties properly recognize, the parties' valid forum-selection clause displaces the Van Dusen rule and requires application of the law of the contractually-selected transferee forum.[1] Of course, a contrary rule would allow a contracting party to frustrate contractual forum-selection and choice-of-law provisions by the simple ploy of filing suit in an inappropriate forum, hoping, that when the action is ultimately transferred, to gain an advantage by the operation of the Van Dusen rule. See Freedman v. Am. Online, Inc., 325 F.Supp.2d 638, 652 (E.D. Va. 2004). Given that the Van Dusen rule does not apply, Virginia law governs the validity and scope of the Agreement's choice-of-law provision. In this respect, it is clear that "Virginia law looks favorably upon choice-of-law clauses in a contract, giving them full effect except in unusual circumstances." Hitachi Credit Am. Corp. v. Signet Bank, 166 F.3d 614, 624 (4th Cir. 1999) (citing Tate v. Hain, 181 Va. 402, 410 (1943)). As no such circumstances exist here, [2] the Agreement's choice-of-law provision is valid and enforceable.

         The next question - the central question presented by this dispute - is the scope of the contractual choice-of-law provision, namely whether the provision applies Virginia law only to the breach-of-contract claim, or whether the provision also extends the application of Virginia law to plaintiffs California tort and unjust enrichment claims, which are related to the alleged breach of contract. Analysis of this question properly begins by focusing on the language the parties used in the provision, as the Supreme Court of Virginia has taught that "the true test for the determination of the proper law of a contract is the intent of the parties." Tate, 181 Va. at 410. And, because contracting parties express their intention "in the words they have used, " courts must examine those words to ascertain the parties' intent. W.F. Magann Corp. v. Virginia-Carolina Elec. Works, Inc., 203 Va. 259, 264 (1962).

         The terms of the choice-of-law provision make clear that the parties intended that the provision apply broadly. Several reasons support this conclusion. To begin with, the provision states that the Agreement's conditions shall be "governed by and construed in accordance with" Virginia law. The two terms - governed and construed - are not congruently symmetrical; "governed" is broader than "construed." The word "construe" means "[t]o analyze and explain the meaning of." Construe, Black's Law Dictionary (10th ed. 2014). In contrast, one court has stated that the "phrase 'governed by'" in a choice-of-law provision "is a broad one signifying a relationship of absolute direction, control, and restraint, " which "reflects the parties' clear contemplation that 'the agreement' is to be completely and absolutely controlled by" the chosen law. Nedlloyd Lines B. V. v. Super. Ct. of San Mateo Cty., 3 Cal.4th 459, 469 (1992). Importantly, both words must be given full effect. See TM Delmarva Power, L.L.C. v. NCP of Va., L.L.C., 263 Va. 116, 119 (2002) ("[N]o word or clause in a contract will be treated as meaningless if a reasonable meaning can be given to it, and parties are presumed not to have included needless words in the contract."). Had the parties used only the word "construed, " that would indicate that the parties agreed to a narrower choice-of-law provision covering only contract claims.[3] See Caton v. Leach Corp., 896 F.2d 939, 943 & n.3 (5th Cir. 1990) (concluding that a choice-of-law provision applying California law to "construe" the contract was a "narrow" provision).[4] Because the parties used both words, and both words must be given meaning, it is clear that the parties intended the provision to cover contract-related tort and unjust enrichment claims. Finally, the fact that the choice-of-law provision is contained in a distinct paragraph titled "Governing Law, " which also includes the forum-selection clause designating a Virginia federal district court as the proper forum, "counsel[s] in favor of a broad interpretation" because that combination "manifests the intent to reduce uncertainty and proceed in one forum under one body of law." Zaklitv. Glob. Linguist Sols., LLC, No. 1:14-cv-314, 2014 WL 3109804, at *11 (E.D. Va. July 8, 2014).[5] In sum, the text of the choice-of-law provision points persuasively to the conclusion that the parties intended that Virginia law apply to tort and unjust enrichment claims related to the Agreement. See Freedman, 325 F.Supp.2d at 641, 653-54 (holding that a choice-of-law provision providing that Virginia law would "govern" the parties' agreement clearly foreclosed plaintiff from bringing a tort claim that arose from the plaintiffs rights under the agreement).[6]

         This conclusion finds further firm support in the very close factual relationship between plaintiffs breach-of-contract, California tort, and unjust enrichment claims. Indeed, plaintiffs California tort and unjust enrichment claims are based on precisely the same facts as those on which the breach-of-contract claim is based. Plaintiffs breach-of-contract claim is based on allegations that defendants overcharged plaintiff for services, invoiced plaintiff in an "opaque" manner, and concealed certain types of fees. Likewise, plaintiffs California statutory tort claim rests on the same alleged facts: overcharging plaintiff, invoicing plaintiff in an "opaque" manner, and concealing certain types of fees. Finally, plaintiffs unjust enrichment claim is based on the allegation that defendants were unjustly enriched because they overcharged plaintiff. In short, plaintiffs breach-of-contract, California tort, and unjust enrichment claims are more than closely related; they are identical. In these circumstances, courts have had no difficulty concluding that such closely related claims are governed by the law selected in the parties' contractual choice-of-law provision. See Hitachi, 166 F.3d at 628 (concluding that plaintiffs tort claim was covered by the contract's choice-of-law provision because of the provision's language and the tort claim's "close relationship" to plaintiffs breach-of-contract claim).[7] To hold otherwise would not only defy common sense, but lead to the anomalous result of applying Virginia law to the breach-of-contract claim and California law to the essentially identical tort and unjust enrichment claims, a result the parties surely did not intend. See Pyott-Boone Elecs. Inc. v. IRR Trust ...


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