Roth v. Penguin Toilets, LLC

Roth v. Penguin Toilets, LLC, 2011 NCBC 45.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF
JUSTICE
CABARRUS COUNTY SUPERIOR COURT DIVISION
11 CVS 478

ROBERT K. ROTH,

Plaintiff,

v.
ORDER & OPINION
PENGUIN TOILETS, LLC,

Defendant.

Bishop, Capitano, & Moss, P.A. by Todd Capitano for Plaintiff Robert K.
Roth.
Richard L. Robertson & Associates, P.A. by Adam M. Bridgers and Richard
Robertson and Couzens, Lanksy, Fealk, Ellis, Roeder, & Lazar, P.C. by David A.
Lawrence for Defendant Penguin Toilets, LLC.

Murphy, Judge.
{1} THIS MATTER is before the Court upon Defendant’s Motion to
Dismiss in Lieu of Answer. Defendant alleges that Plaintiff’s Complaint should be
dismissed because Plaintiff’s claims are subject to a forum selection clause
incorporated from the Original Operating Agreement into the parties’ Employment
Agreement.
{2} After considering the Complaint, the Motion, briefs and submissions of
the parties, and the arguments and contentions of counsel at the August 23, 2011
hearing, the Court DENIES Defendant’s Motion to Dismiss.
I.
PROCEDURAL HISTORY
{3} Plaintiff Robert Roth filed his Complaint on February 9, 2011, in
Cabarrus County, North Carolina. (Compl. p. 4.) On March 21, 2011, this matter
was transferred to the North Carolina Business Court as a mandatory complex
business case, and subsequently assigned to me on March 24, 2011. (Assignment
Order 1.)
{4} On April 15, 2011, Defendant filed its Motion to Dismiss with
supporting brief alleging that Plaintiff’s Complaint should be dismissed because
Plaintiff’s claims are subject to choice of law and forum selection clauses that
require litigation to be conducted in Wayne County, Michigan. (Def.’s Mt. to
Dismiss 1-2.)
{5} Plaintiff filed his Response in Opposition to Defendant’s Motion to
Dismiss on May 23, 2011, to which Defendant replied on June 9, 2011. (Pl.’s Resp.
to Mt. to Dismiss 11; Def.’s Reply in Supp. of Mt. to Dismiss 11.)
{6} This Court held a hearing on Defendant’s Motion to Dismiss on August
23, 2011.
II.
FINDINGS OF FACT
{7} Plaintiff is a citizen and resident of Cabarrus County, North Carolina.
(Compl. ¶ 1.)
{8} Defendant is a Michigan limited liability company that regularly
transacts business in North Carolina. (Compl. ¶ 2.)
{9} On July 15, 2010, the parties entered into an Employment Agreement
wherein Defendant employed Plaintiff as Penguin’s CEO and President and
Plaintiff became a member/director of the LLC. (Emp’t Agreement p. 1.) Per the
terms of the Employment Agreement, Plaintiff acquired a four percent (4%) interest
in Defendant’s profits, losses, and cash distributions. (Id.) The Employment
Agreement contains the terms and conditions governing Plaintiff’s employment
with Defendant. (Compl. ¶ 5.)
{10} The Employment Agreement “require[d] the Parties to apply Michigan
law to its interpretation and enforcement,” but did not include a forum or venue
selection clause. (Emp’t Agreement, Sec. XIV, p. 6.) The Employment Agreement
also makes reference to Defendant’s then-existing Operating Agreement (“Original
O.A.M.”). Plaintiff was not a signatory to the Original O.A.M., or a member of
Penguin Toilets, LLC when the Original O.A.M. was entered into in July 2008. The
Employment Agreement contained the following language: “[i]f, and to the extent,
any term of this [Employment] Agreement conflicts with the [Original O.A.M.], . . .
then this Agreement will supersede the conflicting term, to the extent of such
conflict. (Id. at p. 1.) The Employment Agreement immediately went on to recite:
“[i]n deference to the foregoing sentence, each Member has signed this Agreement
to (and only to) effectively amend the [Original O.A.M.] to hereby revise, as so
required, all conflicting terms of the [Original O.A.M.].” (Id.) The only other
relevant reference to the Original O.A.M. within the Employment Agreement
provides that “[t]his [Employment] Agreement . . . (c) recites, along with the
[Original O.A.M.] and Penguin’s articles of organization, each term governing
[Plaintiff’s] relationship with Penguin.” (Emp’t Agreement Sec. XIV(c), p. 6.)
{11} After the parties entered into the Employment Agreement, an
Amended Operating Agreement (“Current Operating Agreement”) was executed on
September 17, 2010. (Current Operating Agreement A-1, A-25.) Plaintiff signed
the Current Operating Agreement as a member of Penguin Toilets, LLC. The
Current Operating Agreement included an integration clause which provided as
follows: “[t]his Operating Agreement constitutes the entire agreement between the
parties and contains all of the agreement between the parties with respect to its
subject matter.” (Id. at A-23.)
{12} The Current Operating Agreement’s subject matter includes articles
dealing with company organization; capital contributions, membership shares and
capital accounts; administration; tax allocations; distributions; management;
membership; liability and indemnification; transfer of shares; intellectual property;
dissolution; and other miscellaneous provisions. (See Id.)
{13} The Current Operating Agreement’s article on management contains a
provision that the company will be managed under the authority of a Board of
Directors (“BOD”), and that the BOD “shall appoint a CEO and such other officers
and managers as the Board may determine. The term, powers, duties and
compensation of the CEO (see schedule “A”, the Robert Kevin Roth employment
agreement dated July 15th 2010 attached) and such other managers shall be
determined by the [BOD].” (Id. at A-9) (emphasis added).
{14} The Current Operating Agreement, like the Original O.A.M., also
includes a section titled “Governing Law and Venue,” (Id. at A-24; Original O.A.M.
21.) that provides:
This Operating Agreement is being executed and delivered in the
State of Michigan and shall be governed by, construed, and enforced in
accordance with the laws of the State of Michigan. Any dispute or
other legal action concerning this Agreement, including any
arbitration or litigation proceedings shall be conducted in Wayne
County, Michigan unless the Arbitrators identify a more suitable and
agreeable venue and the Members consent to the jurisdiction and
venue of any State or Federal Court located therein.

(Id.) (emphasis added).
III.
LEGAL STANDARD
{15} In both North Carolina and Michigan “‘where parties to a contract
have agreed that a given jurisdiction’s substantive law shall govern the
interpretation of the contract, such a contractual provision will be given effect.’”
Szymczyk v. Signs Now Corp., 168 N.C. App. 182, 186, 606 S.E.2d 728, 732 (2005)
(quoting Land Co. v. Byrd, 299 N.C. 260, 262, 261 S.E.2d 655, 656 (1980)); see also
Turcheck v. Amerifund Fin., Inc., 272 Mich. App. 341, 345 (2006) (stating “[i]t is
undisputed that Michigan’s public policy favors the enforcement of contractual
forum-selection clauses and choice-of-law provisions.”).
{16} In North Carolina, the proper procedure by which to seek enforcement
of a contractual forum or venue selection clause is a motion to dismiss for improper
venue pursuant to Rule 12(b)(3). See Hickox v. R&G Group Int'l, Inc., 161 N.C.
App. 510, 511, 588 S.E.2d 566, 567 (2003); see also Mark Group Int'l, Inc. v. Still,
151 N.C. App. 565, 566 n.1, 566 S.E.2d 160, 161 n.1 (2002).
{17} Upon a motion made pursuant to Rule 12(b)(3), North Carolina courts
will generally enforce a contractual forum selection clause if that clause is
mandatory. Id., 151 N.C. App. at 568, 566 S.E.2d at 162. “[M]andatory forum
selection clauses recognized by our appellate courts have contained words such as
‘exclusive’ or ‘sole’ or ‘only’ which indicate that the contracting parties intended to
make jurisdiction exclusive.” Id. However, “[t]he weight of authority indicates that
the mere use of the word ‘shall’ does not make [a] forum selection clause ‘exclusive.’”
Akima Corp. v. Satellite Servs., No. COA06-112, 2006 N.C. App. LEXIS 2462, *7
(2006). It is not an abuse of discretion by a trial court to deny a motion to dismiss
for improper venue where the jurisdictional clause is not mandatory. Mark Group
Int'l, Inc., 151 N.C. App. at 568, 566 S.E.2d at 162.
{18} “When a contract is in writing and free from any ambiguity which
would require resort to extrinsic evidence, or the consideration of disputed fact, the
intention of the parties is a question of law. The court determines the effect of their
agreement by declaring its legal meaning.” Lane v. Scarborough, 284 N.C. 407, 410,
200 S.E.2d 622, 624 (1973); see also Davison v. Duke Univ., 282 N.C. 676, 712, 194
S.E.2d 761, 783 (1973) (stating “[t]he interpretation of a contract, will or trust
indenture involves the finding of intention. Such interpretation has always been
recognized as being in the province of the court rather than the jury. Hence, it has
uniformly been treated as a question of law subject to review by the appellate
courts.”).
{19} However, “[w]hen an agreement is ambiguous and the intention of the
parties is unclear, interpretation of the contract is for the jury.” Int’l Paper Co. v.
Corporex Constructors, Inc., 96 N.C. App. 312, 317, 385 S.E.2d 553, 556 (1989)
(citing Silver v. Board of Transp., 47 N.C. App. 261, 267 S.E.2d 49 (1980)); see also
Schenkel & Shultz, Inc. v. Herman F. Fox, 362 N.C. 269, 275, 658 S.E.2d 918, 922-
23 (2008) (stating that when an ambiguity is present as to the intended scope of a
reference to another document, “[i]t is for the jury to determine whether a
particular agreement was or was not part of the contract actually made by the
parties.”).
{20} Generally, “‘[w]hen the language of a written contract is plain and
unambiguous, the contract must be interpreted as written and the parties are
bound by its terms.’” Graphic Packaging Int’l v. Gilbertson, No. COA09-1372, 2010
N.C. App. LEXIS 1466 at *10 (2010) (quoting Atlantic & E. Carolina Ry. Co. v.
Wheatley Oil Co., 163 N.C. App. 748, 752, 594 S.E.2d 425, 429 (2004)). “‘An
ambiguity exists in a contract when either the meaning of words or the effect of
provisions is uncertain or capable of several reasonable interpretations.’” Id. at *11
(quoting Schenkel & Shultz, Inc. v. Hermon F. Fox & Assocs., 362 N.C. 269, 273,
658 S.E.2d 918, 922 (2008)). “Thus, if there is uncertainty as to what the agreement
is between the parties, a contract is ambiguous.” Id. “‘Whether or not a contractual
term is ambiguous is a question of law.’” Id. (quoting Huber Engineered Woods,
LLC v. Canal Ins. Co., 203 N.C. App. 1, 8, 690 S.E.2d 739, 745 (2010)).
IV
ANALYSIS
A. Contract Ambiguity
{21} In order for this Court to find as a matter of law that there is an
enforceable forum selection clause, it must, as a threshold issue, determine whether
the relevant documents in this case are unambiguous regarding this issue. Lane v.
Scarborough, 284 N.C. at 410, 200 S.E.2d at 624. Here, Defendant argues
throughout its Brief in Support that the forum selection clauses are “unambiguous,”
and that the Employment Agreement’s references to the Original O.A.M. were
intended to eliminate any “ambiguity regarding the intent of the reference[.]”
(Def.’s Br. in Supp. of Mt. to Dismiss 4.) After reviewing the Original O.A.M.,
Current Operating Agreement, and Employment Agreement this Court agrees with
Defendant that the forum provisions within the Original O.A.M. and Current
Operating Agreement are clear. In addition, the Employment Agreement’s reference
to the Original O.A.M., and the Current Operating Agreements reference to the
Employment Agreement are equally certain. Accordingly, there is no uncertainty as
to what the parties agreed to, and the terms of the relevant documents are
insusceptible to alternative interpretations. Therefore, this Court finds as a matter
of law that the terms of the Original O.A.M., Current Operating Agreement, and
Employment Agreement that impact this Court’s determination of the issue before
it are unambiguous. Huber Engineered Woods, LLC v. Canal Ins. Co., 203 N.C.
App. at 8, 690 S.E.2d at 745.
B. Incorporation by Reference
{22} Because the Original O.A.M., Current Operating Agreement, and
Employment Agreement in this case are unambiguous, their interpretation is a
question of law for the Court. Lane v. Scarborough, 284 N.C. at 410, 200 S.E.2d at
624. Here, the Employment Agreement included a Michigan choice of law provision
but no forum selection clause. (Emp’t Agreement Sec. XIV, p. 6.) The only
documents that included a forum selection clause were the two iterations of
Defendant’s Operating Agreements. (See, Original O.A.M. p. 21; see also Current
Operating Agreement A-24.) Plaintiff, however, was never a signatory to the
Original O.A.M. and, therefore, was not bound by it. While Defendant argues that
the terms of the Original O.A.M. were incorporated by reference into the
Employment Agreement, the clear language of the Employment Agreement leads
the Court to conclude otherwise.
{23} The Miscellaneous section of the Employment Agreement contains the
following language: “[t]his Agreement . . . recites, along with the [Original O.A.M.]
and Penguin’s articles of organization, each term governing [Plaintiff’s] relationship
with Penguin . . . .” (Emp’t Agreement Sec. XIV, p. 6.) The Court does not construe
this to mean, as Defendant argues, that the provisions in each of those documents
were incorporated into each of the other documents. Rather, that to the extent
Plaintiff held a relationship covered by one of the enumerated agreements, the
terms of that particular document would govern that particular relationship.
{24} At the time the Employment Agreement was entered into, there were
at least two relationships created between Plaintiff and Defendant – the first as an
employee (CEO-President) of Defendant, and the second, as a member/director of
Penguin Toilets, LLC. (Id. at Sec. II, p. 1.) Accordingly, the Original O.A.M.
controls the terms of Plaintiff’s relationship as a member/director of Defendant, at
least through September 17, 2010 when the parties mutually executed and entered
into the Current Operating Agreement, and the Employment Agreement controls
the terms of Plaintiff’s relationship as an employee. This interpretation is
supported by a separate provision within the Employment Agreement which
continues Plaintiff’s relationship as an owner/director “. . . according to the
[Original O.A.M.], even after the term of this [Employment] Agreement.” (Id. at
Sec. II(e), p. 1.) (emphasis added). The Court’s determination that the Employment
Agreement contains the terms of Plaintiff’s employment relationship with
Defendant is not to say that a particular relationship can only be controlled by one
document. Instead, the Court merely concludes that the Employment Agreement’s
language referencing the Original O.A.M. and Articles of Incorporation did not
adequately incorporate the terms of those documents, either expressly or by
reference, into the Employment Agreement. The action before this Court concerns
Plaintiff’s relationship as an employee of Defendant. Accordingly, the Employment
Agreement provides the relevant contractual obligations of the parties.
{25} The Employment Agreement reflects the complex relationship between
the parties and takes into account that conflicts between/among the relevant
documents might arise. The Employment Agreement provides in the first
paragraph that “[i]f, . . . any term of this [Employment] Agreement conflicts with
the [Original O.A.M.], . . . then this [Employment] Agreement will supersede the
conflicting term, to the extent of such conflict. (Emp’t Agreement p. 1.) To prevent
potential conflicts, the Employment Agreement went on to provide that “[i]n
deference to the foregoing sentence, each Member has signed this [Employment]
Agreement to (and only to) effectively amend the [Original O.A.M.] to hereby revise,
as so required, all conflicting terms of the [Original O.A.M.].” (Id.) The signature
page of the Employment Agreement confirms that the Members were signing the
Employment Agreement “solely to amend the [Original O.A.M.] per the initial
paragraph hereof.” (Id. at 7.)
{26} If, as Defendant argues, the terms of the Operating Agreement were
incorporated by reference, there would have been no need to include language in the
Employment Agreement addressing the problem of conflicting terms within the
Operating Agreement; the Operating Agreement’s terms would have been included
within the Employment Agreement. The presence of the superseding clause
suggests to the Court that the parties did not intend to incorporate the Operating
Agreement’s terms into the Employment Agreement. Instead, the Employment
Agreement was intended to control the terms of Plaintiff’s employment relationship
with Defendant, and any inconsistent terms within the Operating Agreement were
to have no effect on that relationship.
{27} Lastly, Defendant has argued that the Current Operating Agreement’s
reference to the Employment Agreement effectively incorporated the Employment
Agreement into the subject matter of the Current Operating Agreement, and as a
result, makes any dispute under the Employment Agreement subject to the Current
Operating Agreement’s forum selection clause. (Def.’s Br. in Supp. of Mt. to Dismiss
5-6.) This contention is unsupported by the language of the Current Operating
Agreement. As noted above, the Current Operating Agreement provides that the
BOD “shall appoint a CEO and such other officers and managers as the Board may
determine. The term, powers, duties and compensation of the CEO (see schedule
“A”, the Robert Kevin Roth employment agreement dated July 15th 2010 attached)
and such other managers shall be determined by the [BOD].” (Id. at A-9.) This
language gives the BOD the authority to appoint a CEO and other managers they
deem appropriate for the proper management of the LLC; it also allows the BOD to
determine the length of their employment, duties, and compensation. The reference
to the Employment Agreement only serves to illustrate how the BOD may exercise
its powers and authority over management matters and does not make the
Employment Agreement the “subject matter” of the Current Operating Agreement.
Accordingly, the Current Operating Agreement’s forum selection clause is not
binding in disputes over Plaintiff’s employment.
{28} The absence of a forum selection clause within the Employment
Agreement, lack of intent between the parties to incorporate the Operating
Agreement’s terms into the Employment Agreement, and failure of the Current
Operating Agreement to incorporate the Employment Agreement into its subject
matter, directs the Court’s conclusion that there is no binding forum selection
clause controlling Plaintiff employment, and therefore Plaintiff was not limited to
bringing his action in Michigan.
C. Non-Mandatory Forum Selection Clause
{29} Even if this Court found the Original O.A.M. and/or Current Operating
Agreement’s forum selection clause was integrated into the Employment
Agreement, Plaintiff would still be able to bring this action in North Carolina
because the forum selection clause is not mandatory. As noted above, North
Carolina courts will enforce a contractual forum selection clause if that clause is
mandatory. Mark Group Int'l, Inc., 151 N.C. App. at 568, 566 S.E.2d at 162.
{30} Here, the forum selection clause provides that “[a]ny dispute or other
legal action concerning this Agreement, including any arbitration or litigation
proceedings shall be conducted in Wayne County, Michigan unless the Arbitrators
identify a more suitable and agreeable venue and the Members consent to the
Jurisdiction and venue of any State or Federal Court located therein.” (Current
Operating Agreement A-24.) While the word “shall” indicates that the proceedings
are to be conducted in Wayne County, Michigan, it does not say that this is the only
venue where proceedings may be conducted. North Carolina courts have found that
mandatory selection clauses include words “such as ‘exclusive’ or ‘sole’ or ‘only’
which indicate[] that the contracting parties intended to make jurisdiction
exclusive.” Mark Group Int'l, Inc., 151 N.C. App. at 568, 566 S.E.2d at 162.
{31} In a case similar to the one before this Court, the North Carolina Court
of Appeals was presented with a forum selection clause which recited that “any
dispute arising from or relating to this Agreement shall be subject to adjudication
by a court of competent jurisdiction in the State of Michigan unless otherwise
agreed upon by the [p]arties.” Akima Corp., No. COA06-112, 2006 N.C. App. LEXIS
2462, at *7 (applying Michigan law) (emphasis added). The court held that
“[identical] language . . . ha[d] been found not to be exclusive,” Id. at *8; see also
Mark Group, 151 N.C. App. at 568, 566 S.E.2d at 162 (finding as non-exclusive a
forum selection clause that stated the contract “shall be subject to the jurisdiction of
the State of Colorado . . .”) (emphasis added). The court went on to find that the use
of the word “shall” did not make the clause mandatory, and thus the action could be
brought in jurisdictions other than Michigan. Akima Corp., No. COA06-112, 2006
N.C. App. LEXIS 2462, at *10.
{32} The forum selection clause in this case suffers from the same infirmity
as the clause in Akima because it fails to use mandatory language. Like the clause
in Akima, the clause here simply says that “proceedings shall be conducted in
Wayne County, Michigan.” (Current Operating Agreement A-24.) This, however,
does not mean that Wayne County, Michigan is the only place where an action may
be brought. Accordingly, even if the Court found the forum selection clause in the
Original O.A.M. and/or Current Operating Agreement had been incorporated into
the Employment Agreement, it would not necessarily follow that adjudication in
North Carolina is improper.
IV.
CONCLUSION
{33} Absent a forum selection clause within the Employment Agreement, or
an effective incorporation of either operating agreements’ forum selection clause
into the Employment Agreement, the Employment Agreement does not contain a
choice of forum provision limiting the location where Plaintiff may bring this action.
Even if the provision had been incorporated, it is not mandatory. Thus, Plaintiff
may properly bring and prosecute his action in this jurisdiction, and North Carolina
is an appropriate forum.
{34} For the reasons noted above, it is hereby ORDERED that Defendant’s
Motion to Dismiss is DENIED.

This 30th day of November, 2011.