Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E. D. Mich.: Forum selection clause mandated transfer of claim ‘related to’ distribution agreement, (Dec 21, 2015)

By Michael Menzhuber, J.D., LL.M.

A forum selection clause in an exclusive fabric distribution agreement—requiring that claims filed by the fabric innovation company be brought in the U.S. district court in Kent County, Michigan—was enforced by the federal district court in Detroit. The court determined that the clause was enforceable because it applied to claims “related to” the agreement, which included the company’s claim that the distributor misrepresented that fabrics were treated with the company’s proprietary process (Nanotex LLC v. Schroeter, December 17, 2015, Murphy, S.).

Applied Textiles, Inc. entered into a distribution agreement with Nanotex LLC to buy quantities of Nanotex’s product and treat its fabrics for sale in the contract interior and furniture markets. The agreement included the right of Applied Textiles to use Nanotex’s marks in advertising the treated fabric. It also included a forum selection clause that applied to any claim or controversy “arising out of or related” to the agreement.

After testing fabrics sold by Applied Textiles using the Nanotex marks, and finding that many of them had not been treated with its proprietary chemistry, Nanotex sued Applied Textiles and its president for selling fabrics falsely described as treated with Nanotex’s proprietary treatment. The defendants filed a motion to dismiss or, in the alternative, to transfer the case to the Western District of Michigan.

Forum Selection Clause. The court noted that a forum section clause is generally enforced unless: (1) it was obtained by fraud or duress; (2) the selected forum would not handle the suit, or do so effectively or fairly; or (3) the selected forum would be unjustly inconvenient for the plaintiff. Nanotex did not argue that the forum selection was unenforceable for any of these reasons, but rather that it was unenforceable because its complaint fell outside the scope of the distribution of genuine Nanotex products set forth in the agreement.

The court disagreed. It determined that: (1) Nanotex’s claim that the defendants’ had sold counterfeit goods wrongfully using its mark was “related to” a primary subject of the agreement; and (2) the forum selection clause, rather than using the more limiting phrase “arising under,” used the more inclusive phrase “related to.”

After determining that the forum selection clause was enforceable, the court transferred the case to the U.S. District Court for the Western District of Michigan.

The case number is 2:15-cv-12479.

Attorneys: Mark A. Cantor (Brooks & Kushman PC) for Nanotex LLC. Jeffery S. Crampton (Koernke and Crampton, PC) for John Schroeter.

Companies: Applied Textiles, Inc.; Nanotex LLC

Cases: FranchisingDistribution MichiganNews