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.