Berg v. MTC Electronics Technologies Co.

Opinion

This shareholder action raises questions of forum non conveniens. Two issues predominate. The first concerns the effect on forum non conveniens analysis of a clause by which a party submits to jurisdiction in California. The second concerns the circumstances in which a case filed in California by a California resident can properly be stayed pending litigation elsewhere.

The trial court stayed the instant action in favor of litigation of several similar suits pending in the United States District Court for the Eastern District of New York in Brooklyn (EDNY). The instant action as well as the previous suits pending in the EDNY all arise out of transactions involving the stock of MTC Electronic Technologies Co., Ltd. (MTC), and the activities of MTC in the telecommunications business in China. MTC, numerous MTC directors and officers, and MTC’s underwriters and auditors are defendants in the litigation pending in the EDNY.

MTC is a British Columbia corporation. The clause by which MTC submitted to jurisdiction in California is contained in a prospectus for an MTC stock issue. The clause states simply that MTC has submitted to jurisdiction in Los Angeles. The clause does not expressly mandate Los Angeles as the exclusive forum in which any claims against MTC must be resolved, as “mandatory” forum selection clauses do. Instead, the clause in issue here is worded simply to submit a foreign corporation (MTC) to jurisdiction in Los Angeles.

Broadly worded service of suit clauses, by which a party submits to jurisdiction in any competent court, have been found not to be mandatory forum selection clauses. The clause in issue here is more narrowly worded; it submits MTC only to the jurisdiction of courts in Los Angeles, rather than

The second issue, regarding when a case filed in California by a California resident may be stayed, implicates considerations of comity and judicial economy as opposed to California’s strong interest in protecting the interests of California plaintiffs. Considerations of comity and judicial economy can sometimes justify a stay even if California plaintiffs are involved.

Under the circumstances of this case, the trial judge acted within the scope of her permissible discretion when she stayed the instant action. The order staying the instant action pending litigation of the related actions in the EDNY will therefore be affirmed.

I. Factual and Procedural Background.

The focus of the instant action is MTC’s representations concerning its involvement in the emerging telecommunications industry in the People’s Republic of China. MTC’s involvement in China also forms the subject matter of numerous other lawsuits, all of them pending in the EDNY. The allegations advanced in these numerous MTC lawsuits are detailed and complex, but a skeletal outline is sufficient to illustrate the forum non conveniens issues.

a. The "MTC I” and "MTC II” lawsuits.

In 1993, MTC shareholders filed three class actions in the EDNY. Named as defendants were MTC, numerous directors and officers of MTC, MTC’s underwriters (plus an affiliated company which allegedly assisted in marketing MTC stock), and MTC’s auditors. These actions were consolidated (MTC I) and eventually assigned to Judge Gleeson and Chief Magistrate Chrein (the EDNY judges). In 1994, another class action was filed in the EDNY against substantially the same defendants (MTC II). MTC II was assigned to the same EDNY judges.

Both MTC I and MTC II revolve around allegations of false statements concerning MTC’s activities in selling fax machines, cellular telephones and

Both MTC I and MTC II allege fraudulent activities in violation of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (15 U.S.C. §§ 78j, 78t), Securities and Exchange Commission rule 1 Ob-5, and the Racketeer Influenced and Corrupt Organizations Act (RICO). In 1994, an additional action was filed in the EDNY, pleading claims identical to MTC I, apparently for the sole purpose of adding another class representative to the MTC I litigation. This latter case was also assigned to the same EDNY judges. For purposes of forum non conveniens analysis, we consider this latter case to be part of MTC I.

b. The Kayne case.

In 1995, another MTC case was filed in the United States District Court for the Central District of California in Los Angeles (Kayne). The plaintiffs in Kayne are MTC shareholders. The defendants are MTC and numerous directors and officers of MTC. The Kayne case alleges, similarly to MTC I and MTC II, fraud in connection with MTC’s cellular phone, pager and fax activities in China, as well as claims of improprieties in connection with an ensuing hostile takeover battle. The Kayne complaint pleads violations of sections 10(b) and 20 of the Securities Exchange Act of 1934 (15 U.S.C. §§ 78j, 78t) and Securities and Exchange Commission rule 1 Ob-5, plus pendent state claims of fraud, negligent misrepresentation, breach of fiduciary duty and violations of the California Corporations Code, as well as other claims. The time period during which the Kayne plaintiffs allegedly bought MTC stock coincides in large part with the combined class periods alleged in MTC I and MTC II.

c. The Ruling of the MDL Panel.

After the Kayne case was filed, MTC plus ten director and officer defendants filed a motion with the federal Judicial Panel on Multidistrict Litigation (the MDL panel) seeking transfer of the Kayne case to the EDNY for coordination with MTC I and MTC II. The MDL panel granted the motion, finding that the Kayne case and MTC I and MTC II “involve common questions of fact, and that centralization ... in the Eastern District of New York will best serve the convenience of the parties and witnesses and promote the just and efficient conduct of the litigation. While some

Neither this court nor the trial court has any direct power over either the MDL panel or the EDNY. Nevertheless, both this court and the trial court do have a duty to ensure fair treatment to California plaintiffs. (See, e.g., Stangvik v. Shiley Inc. (1991) 54 Cal.3d 744 [ 1 Cal.Rptr.2d 556 , 819 P.2d 14 ]; Thomson v. Continental Ins. Co. (1967) 66 Cal.2d 738 [ 59 Cal.Rptr. 101 , 427 P.2d 765 ].) The interest of California in ensuring fair treatment of California plaintiffs is the reason why the law generally allows only for a stay, and except in rare circumstances precludes dismissal, of an action filed by California residents. (See Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 1997) 513:426 et seq., p. 3-103 et seq.) The instant action was stayed, not dismissed. The trial court retains jurisdiction. If an action is stayed in favor of litigation in an alternative federal forum, and the federal forum commences to deprive a California plaintiff of a fair adjudicatory process, a California court has the power to lift the stay and proceed with litigation. Such a course should of course not be taken lightly, because it would create an unseemly conflict between federal and state courts, and cause the potential for conflicting rulings. Instead, such action would have to be confined to extreme cases. Yet it remains an available option if necessary to prevent injustice to a California plaintiff.

The plaintiffs complain here about the general inconvenience of litigating in Brooklyn, about allegedly inconvenient scheduling of discovery amounting to “prejudice” and “ongoing unfairness,” and about allegedly dismissive remarks by the magistrate judge in the EDNY. Assuming that any of these complaints are sufficient to support relief of some kind, plaintiffs could seek that relief in the federal appellate courts. Apparently they have not done so. If a sufficient basis for lifting the stay should arise, the facts constituting that basis should first be presented to the trial court. In ruling on this appeal, we therefore disregard plaintiffs’ effective request that we base our decision upon an appellate-style review of the rulings of the MDL panel and the EDNY, or upon events that have allegedly occurred since the trial court

Many clauses call for a party to submit to the jurisdiction of “any court of competent jurisdiction.” (See, e.g., Appalachian Ins. Co. v. Superior Court, supra, 162 Cal.App.3d 427 .) This “Lloyd’s-type” clause does not preclude the application of generally applicable forum non conveniens principles. To the contrary, it can be an abuse of discretion for a court to deny a forum non conveniens motion in a case with such a clause. (See, e.g., Appalachian Ins. Co., supra, 162 Cal.App.3d 427 .) The clause at issue in the instant case varies from the broad “Lloyd’s-type” clause involved in Appalachian Insurance Co. only in that is more narrowly focused. Rather than providing that MTC submits to any court of competent jurisdiction, it provides that MTC submits only to the jurisdiction of a court in Los Angeles. However, the clause does not expressly provide that any dispute must be resolved exclusively in Los Angeles regardless of what other factors might exist. Clauses that grant jurisdiction to a particular forum without expressly making that forum the mandatory situs for resolution of disputes are considered permissive only. (See, e.g., Hunt Wesson Foods, Inc. v. Supreme Oil Co. (9th Cir. 1987) 817 F.2d 75 ; Utah Pizza Service, Inc. v. Heigel (D. Utah 1992) 784 F.Supp. 835 .)

Hunt involved a contract with a clause which stated: “ ‘The courts of California, County of Orange, shall have jurisdiction over the parties in any action at law relating to the subject matter or the interpretation of this contract.’ ” (Hunt Wesson Foods, Inc. v. Supreme Oil Co., supra, 817 F.2d 75 , 76.) Plaintiff filed suit in Orange County, but defendant removed to federal district court. The federal district court remanded, ruling that the clause mandated litigation in Orange County. Defendant appealed. The Ninth Circuit reversed, stating, “Here, the plain meaning of the language is that the Orange County courts shall have jurisdiction over this action. The language says nothing about the Orange County courts having exclusive

In Utah Pizza. Service, Inc. v. Heigel, supra, 784 F.Supp. 835 , 837, the contract contained a clause stating; “ ‘The parties agree that in the event of litigation between them, Franchise Owner stipulates that the courts of the State of Michigan shall have personal jurisdiction over its person, that it shall submit to such personal jurisdiction, and that venue is proper in Michigan.’ ” The court rejected the claim that this clause mandated litigation in Michigan only, stating, “Numerous courts have held that forum selection clauses which give a court jurisdiction without clearly making that jurisdiction exclusive are permissive rather than mandatory. The mere granting of jurisdiction is insufficient to make a clause mandatory. Additional language giving exclusive jurisdiction to the forum is required. Clauses which merely grant jurisdiction to a designated forum do not prohibit litigation in other appropriate fora. [Citations.] [ft] . . . [ft] A mandatory clause contains clear language showing that jurisdiction is appropriate in the designated forum and none other. See Hunt Wesson Foods, Inc. v. Supreme Oil Co., 817 F.2d at 77-78 ; Kachal, Inc. v. Menzie, 738 F.Supp. at 373-74. (‘Mandatory forum selection clauses contain language such as “exclusive” or “only”. The language mandates that the designated courts are the only ones which have jurisdiction.’)” (Utah Pizza Service, Inc. v. Heigel, supra, 784 F.Supp. 835 , 838; see also Docksider, Ltd. v. Sea Technology, Ltd. (9th Cir. 1989) 875 F.2d 762 , 764 [“When only jurisdiction is specified the clause will generally not be enforced without some further language indicating the parties’ intent to make jurisdiction exclusive.”].)

The clause at issue here does not specify Los Angeles as the exclusive forum, but instead provides only for personal jurisdiction in Los Angeles. According to the authorities cited, the clause is therefore not a mandatory forum selection clause, but rather a “permissive” one only. On this authority, the trial court was correct in applying the general principles of forum non conveniens, rather than the rules that apply to enforcement of mandatory forum selection clauses.

By the time of the stay motion, 200,000 pages of documents had been produced from MTC’s files in British Columbia and Hong Kong. Ninety-two days of deposition had been taken, and one thousand deposition exhibits had been marked. Witnesses had come from various locales, many from British Columbia and Asia. While some witnesses and evidence are located in Los Angeles, Los Angeles is by no means the “center of gravity” of this dispute. Many operative events appear to have occurred in China or British Columbia, or anywhere MTC’s prospectus was disseminated. Most of the defendants were subject to jurisdiction in the EDNY.

The plaintiffs’ opposition to the motion to stay was based primarily on the jurisdiction clause discussed above, the ruling of the MDL panel, the pretrial rulings made by the EDNY judges, and the California residence of many of the plaintiffs. Even though these factors are entitled to consideration, the trial judge in these circumstances could reasonably find them outweighed by the burdens and inefficiencies that would be imposed by the conduct of parallel litigations in different fora, especially in light of the far-flung evidence and operative events. The trial court therefore did not err in issuing a stay pending developments in the EDNY cases on grounds of forum non conveniens.

The order appealed from (order staying the instant case pending litigation of the EDNY cases) is affirmed. Each party to bear its own costs on appeal.

Boren, P. J., and Fukuto, J., concurred.

Appellants’ petition for review by the Supreme Court was denied April 29, 1998.