USL Financials, Inc. v. Cook County, Illinois

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IN THE UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF MARYLAND, NORTHERN DIVISION
*
USL FINANCIALS, INC., 	*
Plaintiff, 	*
v. 	* 	CIVIL NO.: WDQ-05CV-2298
COOK COUNTY, ILLINOIS, 	*
Defendants. 	*
* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	*
MEMORANDUM OPINION
USL Financials (“USL”) has sued Cook County, Illinois (“Cook
County”) for breach of contract, quantum meruit and unjust
enrichment. 	Pending is Cook County’s motion to dismiss for lack
of personal jurisdiction and improper venue. 	For the following
reasons Cook County’s motion to dismiss will be granted in part
and denied in part and this action will be transferred to the
United States District Court for the District of Illinois.
I. 	Background
USL is a Maryland corporation that provides computer based
accounting and financial management services to state and local
governments. 	Complaint, ¶ 2. 	In April and August, 1999, Cook
County contracted with USL for equipment and services to upgrade
the general ledger and cashiering systems of the Cook County
Treasurer’s Office (the “GL Contract” and “Cashiering Contract”).
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Id at ¶¶ 6-10, 28,29. 	USL also alleges that Cook County orally
contracted with USL for additional materials, equipment and
services outside the scope of the GL and Cashiering contracts.
Id at ¶ 47.
Work began on the GL and Cashiering contracts in the summer
of 1999. 	Karahalios Affidavit, ¶ 11. 	According to Cook County,
USL soon fell behind schedule and its performance was
unsatisfactory. 	Id at ¶ 13. 	Cook County discharged USL before
the expiration of the contracts. 	Id at 4. 	In January, 2003, USL
sued Cook County for breach of contract in the United States
District Court for the Northern District of Illinois. 	Id at ¶
16. 	USL voluntarily dismissed its Complaint, without prejudice,
when the Court directed USL to secure new counsel (USL’s counsel
at the time had a conflict of interest).
On May 21, 2004 USL petitioned for Chapter 11 bankruptcy
protection in the United States Bankruptcy Court for the District
of Maryland. 	On March, 2005 USL brought this suit in the
Bankruptcy Court; Cook County moved to dismiss in August, 2005.
On January 5, 2006 this Court withdrew the reference of this
adversary proceeding to the Bankruptcy Court.
II. 	Analysis
Cook County has moved to dismiss the Complaint arguing that
the Court lacks personal jurisdiction over Cook County, and that
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the parties are subject to forum selection clauses designating
Illinois as the exclusive jurisdiction for litigation arising out
of the contracts. 	USL argues in response that Cook County has
sufficient contacts with Maryland for the Court to exercise
personal jurisdiction; 2) application of the forum selection
clause in the GL contract would be unreasonable; and 3) the
Cashiering Contract lacks a forum selection clause.
A. 	Lack of Personal Jurisdiction
Under Federal Rule of Civil Procedure 12(b)(2) a district
court may dismiss a claim for lack of personal jurisdiction. 	The
plaintiff bears the burden of proving the grounds for
jurisdiction by a preponderance of the evidence. 	Carefirst of
Maryland v. Carefirst Pregnancy Centers, Inc., 334 F.3d 390, 396
(4 th Cir. 2003); Mylan Labs., Inc. v. Akzo, N.V., 2 F.3d 56, 59-
60 (4 th Cir. 1993); Combs v. Bakker, 886 F.2d 673, 676 (4th Cir.
1989). 	When the Court decides a pretrial personal jurisdiction
motion without an evidentiary hearing, the plaintiff need only
make a prima facie showing of personal jurisdiction. 	Carefirst,
334 F.3d at 396; Combs, 886 F.2d at 676. 	In deciding whether the
plaintiff has made the requisite showing, the court must construe
all disputed facts and reasonable inferences in favor of the
plaintiff. 	Id.
The exercise of personal jurisdiction over a nonresident
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defendant must comply with the requirements of Maryland’s long-
arm statute and the Due Process Clause of the Fourteenth
Amendment. 	Carefirst, 334 F.3d at 396; Hill v. Brush
Engineering, 383 F.Supp.2d 814, 817 (D.Md. 2005). 	Maryland's
long-arm statute (Maryland Code Annotated, Courts & Judicial
Procedure § 6-103) permits the exercise of personal jurisdiction
to the limits set by the Due Process Clause. 	Carefirst, 334 F.3d
at 396; Hill, 383 F.Supp.2d at 817; Mohamed v. Michael, 279 Md.
653, 370 A.2d 551, 553 (Md. 1977); Geelhoed v. Jensen, 277 Md.
220, 224, 352 A.2d 818 (Md. 1976).
A court’s exercise of jurisdiction over a nonresident
defendant comports with due process if the defendant has had such
minimum contacts with the forum that subjecting him to
jurisdiction there does not offend traditional notions of fair
play and substantial justice. 	Carefirst, 334 F.3d at 397 (citing
Int'l Shoe Co. v. Wash., 326 U.S. 310 (1945)). 	The quality and
nature of the defendant’s contacts with the state must be such
that it could reasonably expect to be haled into court there.
Shamsuddin v. Vitamin Research Products, 346 F.Supp.2d 804, 807
(D.Md. 2004).
If the suit arises out of defendant's contacts with the
state, the court may have specific jurisdiction. 	Helicopteros
Nacionales de Colombia., S.A., v. Hall, 466 U.S. 408, 414-415
(1984); Carefirst, 334 F.3d at 397. 	In determining whether
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specific jurisdiction exists, courts consider: 1) the extent to
which the defendant has purposefully availed itself of the
privilege of conducting activities in the state; 2) whether the
plaintiff’s claims arise out of those activities directed at the
state; and 3) whether the exercise of personal jurisdiction would
be constitutionally reasonable. 	Carefirst, 334 F.3d at 397; ALS
Scan, Inc. v. Digital Service Consultants, Inc., 293 F.3d 707
(4 th Cir. 2002).
Cook County argues that the Court may not exercise personal
jurisdiction because: 1) USL’s principal place of business was in
Virginia at the time the contract was negotiated and performed;
2) the contract was negotiated in Illinois; 3) all goods and
services were provided in Illinois; and 4) all communication
between the parties was initiated either in Virginia or Illinois.
USL argues in response that: 1) it is incorporated in
Maryland; 2) has offices in Maryland; 3) Cook County solicited
its services in Maryland; and 4) the contracts were initially
negotiated in Maryland.
Although the parties disagree about whether a Cook County
representative traveled to Maryland to negotiate the contract and
whether that representative had the authority to negotiate the
contract, in the context of this motion to dismiss the Court must
construe all disputed facts and inferences therefrom in favor of
USL. 	Assuming that USL is a Maryland corporation, that Cook
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County sent a representative to solicit USL services in Maryland
and entered into contract negotiations in Maryland, there were
sufficient contacts between Cook County and this district for
personal jurisdiction.
B. 	Enforceability of the Forum Selection Clauses
Cook County has also moved to dismiss the Complaint under
Rule 12(b)(6)(failure to state a claim), Rule 12(b)(3)(improper
venue), or Rule 12(b)(1)(lack of subject matter jurisdiction),
arguing that the GL and Cashiering contracts contain forum
selection clauses that require litigation of any dispute in
Illinois. 	USL has responded, arguing that enforcement of the
forum selection clause of the GL Contract would be unreasonable
and the Cashiering Contract and the oral contract lack forum
selection clauses.
Forum selection clauses are presumptively valid and “should
be enforced unless enforcement is shown by the resisting party to
be unreasonable under the circumstances.” 	M/S Bremen v. Zapata
Off-Shore Co., 407 U.S. 1, 10 (1972), see also Allen v. Lloyd’s
of London, 94 F.3d 923 (4 th Cir. 1996). 	Unreasonableness may be
found when: 1) formation of the contract was induced by fraud; 2)
the complaining party will be deprived of its day in court
because of the inconvenience or unfairness of the forum; 3) the
fundamental unfairness of the chosen law may deprive the
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plaintiff of a remedy; or 4) enforcement would contravene a
strong public policy of the forum state. 	Allen, 94 F.3d 923.
1. 	The GL Contract
The GL contract includes a “Governing Law” section that
provides that:
The Contractor irrevocably agrees that, subject to the
County’s sole and absolute election, any action or
proceeding in any way, manner or respect arising out of the
Contract, or arising from any dispute or controversy arising
in connection with or related to the Contract, shall be
litigated only in courts within the City of Chicago, County
of Cook, State of Illinois, and the Contractor consents and
submits to the jurisdiction thereof.
Contract for Service, Document No. 99-43-957, GC-29.
On its face, this section requires adjudication of all
disputes in Cook County. 	Although USL argues that enforcement of
the provision would be unreasonable, there has been no allegation
that formation of the contract was induced by fraud; that
litigating the case in Illinois would be unduly inconvenient;
that the law of Illinois would deprive USL of a remedy; or that
enforcement of the provision would violate Maryland public
policy. 	Accordingly, the forum selection clause of the GL
Contract is enforceable.
2. 	The Cashiering System Contract
The Cashiering Contract also contains a “Governing Law”
provision, although this provision provides that:
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This agreement will be interpreted under and governed by the
laws of the state of Illinois. 	Venue shall be proper in a
court of competent jurisdiction located within the County of
Cook, Illinois.
Contract for Service, Document No. 99-43-1440, GC-46.
Cook County argues that the forum selection clause is
mandatory, requiring litigation of all controversies in Cook
County. 	USL argues that the provision is permissive, providing
only that disputes may be brought in Illinois courts.
The Fourth Circuit has held that the use of “shall” or
“shall be” generally indicates a mandatory intent. 	Sterling
Forest Associates, Ltd., v. Barnett-Range Corp., 840 F.2d 249
(4 th Cir. 1988) reversed on other grounds, 490 U.S. 495
(1989)(forum selection clause providing that “venue shall be in
California” was mandatory); see also Milk n’ More, Inc. v.
Beavert, 963 F.2d 1342 (10 th Cir. 1992)(provision that “venue
shall be proper under this agreement in Johnson County, Kansas”
was mandatory); Davis Media Group v. Best Western International,
Inc., 302 F.Supp.2d 464 (D.Md. 2004)(provision that “all
suits...shall be subject to the jurisdiction of the Courts of the
State of Arizona” was mandatory).
In addition, USL’s construction of the provision as
permissive would render the forum selection clause meaningless,
insofar as venue in Cook County would be proper. 	As clauses
knowingly incorporated into a contract should not be treated as
surplusage, the provision was clearly intended to be mandatory.
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transfer is raised by the court sua sponte, Feller, 802 F.2d 722,
given the extensive briefing on the forum selection clauses, the
Court does not require further argument about the inconvenience
of litigating this action in Illinois. 	Kotler, 2002 WL
31387299.
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Sterling, 840 F.2d 249; Davis, 302 F.Supp.2d 464.
As the forum provision clause of the Cashiering Contract was
mandatory and because enforcement of the provision would not be
unreasonable, the forum selection clause of the Cashiering
Contract is enforceable.
C. Motion to Transfer
As the forum selection clauses of the GL and Cashiering
contracts are enforceable, USL’s complaint may be dismissed on
the basis of improper venue pursuant to Rule 12(b)(3). 	Davis,
302 F.Supp.2d 464; Eisaman v. Cinema Grill Systems, Inc., 87
F.Supp.2d 446 (D.Md. 1999). 	The Court may also, sua sponte,
transfer the action under 28 U.S.C. § 1404(a) “for the
convenience of the parties and witnesses” and “in the interest of
justice.” 	28 U.S.C. § 1404(a); Feller v. Brock, 802 F.2d 722
(4 th Cir. 1986); Kotler v. Pacific Asian Enterprises, Inc, 2002
WL 31387299 (W.D.N.C. 2002). 1
In deciding whether to dismiss or transfer for improper
venue, “the usual procedure should be transfer rather than
dismissal.” 	Davis, 302 F.Supp.2d at 470.
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In determining whether to transfer a suit, courts consider:
1) the weight accorded the plaintiff’s choice of venue; 2)
witness convenience and access; 3) convenience of the parties,
and 4) the interests of justice. 	Lynch v. Vanderhoeff Builders,
237 F.Supp.2d 615 (D.Md. 2002). 	Although not dispositive, an
enforceable forum selection clause “will be a significant factor
that figures centrally in the district court’s calculus.”
Stewart Organization, Inc. v. Ricoh Corporation, 487 U.S. 22, 29
(1988); BHP International Investment, Inc. v. Online Exchange,
Inc., 105 F.Supp.2d 493 (E.D.Va. 2000).
1. 	Plaintiff’s Choice of Venue
Although a plaintiff’s choice of venue is normally accorded
considerable weight, “when a forum-selection clause is part of
the balancing...it is more logical to consider the plaintiff's
initial choice of forum to be the forum that is contractually
agreed upon.” 	Republic Mortgage Insurance. Co. v. Brightware,
Inc., 35 F.Supp.2d 482, 486 (M.D.N.C.,1999); see also Davis, 302
F.Supp.2d 264; AC Controls Company, Inc. v. Pomeroy Computer
resources, Inc., 284 F.Supp.2d 357 (W.D.N.C. 2003). 	As the GL
and Cashiering contracts contain enforceable forum selection
clauses that require litigation of disputes arising out of the
contracts in Cook County, this factor favors transfer.
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2. 	Convenience of Witnesses and Parties
USL has offices in Maryland; Cook County’s employees and
records are located in Illinois. 	As a result, one party and its
witnesses will be inconvenienced regardless of the forum.
Accordingly, the Court finds this factor neutral.
3. 	Interests of Justice
Consideration of the interests of justice “is intended to
encompass all those factors bearing on transfer that are
unrelated to convenience of witnesses and parties.” 	Board of
Trustees, Sheet Metal Workers Nat. Fund v. Baylor Heating & Air
Conditioning, 702 F.Supp. 1253, 1260 (E.D.Va.,1988). 	Factors
include the court’s familiarity with the applicable law, the
possibility of an unfair trial and the possibility of harassment.
Id.
Although there has been no allegation that Cook County
cannot receive a fair trial or will be harassed in this district,
the GL and Cashiering Contracts explicitly require interpretation
of Illinois law. 	GL Contract, GC-29; Cashiering Contract, GC-46.
This factor favors transfer.
Although there is no allegation that the oral contract
included a forum selection clause, litigating those claims along
with the GL and Cashiering contract claims would be in the
interest of judicial economy.
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III. 	Conclusion
Cook County’s motion to dismiss will be denied in part and
granted in part and this action will be transferred to the United
States District Court for the Northern District of Illinois.
March 2, 2006 	/s/
Date 	William D. Quarles, Jr.
United States District Judge
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