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Solid Q Holdings, LLC v. Arenal Energy Corp.

United States District Court, D. Utah, Central Division

March 8, 2017

SOLID Q HOLDING, LLC, Plaintiff,
v.
ARENAL ENERGY CORPORATION, RICHARD REINCKE, ERIC JOHNSON, BRIAN CHAPLIK, GUS SHOUSE, TOM BUIEL, and CHRIS COTA, Defendant.

          MEMORANDUM DECISION AND ORDER DENYING [54] MOTION TO DISMISS

          David Nuffer District Judge

         Defendant Richard Reincke makes a limited appearance to move to dismiss the case based on a mandatory forum selection clause and the doctrine of forum non conveniens.[1] The plaintiff Solid Q Holdings, LLC, responded in opposition.[2] Reincke replied in support of his motion.[3]

         Because Solid Q's causes of action are outside the scope of the forum selection clause, the Motion is DENIED.

         BACKGROUND

         Solid Q alleges it loaned Arenal $150, 000 based on material misrepresentations made by the defendants. The terms of that loan were memorialized in a promissory note.[4] The promissory note contains the following clause: “This Note will be governed by, construed and enforced in accordance with federal law and the laws of the State of Utah. Jurisdiction shall lie exclusively within the courts of the State of Utah.”[5]

         The causes of action are based on federal and state securities laws.[6]Reincke argues the forum selection clause requires a Utah state court to hear the dispute because it says “courts of the State of Utah, ” and not “courts in the state of Utah.”[7] Solid Q does not refute Reincke's prepositional explication. Instead, it focuses on either avoiding the implications of the forum selection clause or undermining its validity. First, Solid Q argues that the purported forum selection clause is invalid because 15 U.S.C. § 78aa confers “exclusive jurisdiction” on federal courts for any violations of the Securities Exchange Act.[8] Second, Solid Q argues that the forum selection clause does not govern the causes of action in this case.[9] And third, Solid Q argues that the forum selection clause “is unfair.”[10]

         Because the motion is resolved with Sold Q's second argument, it is not necessary to reach the third.

         DISCUSSION

         “Forum selection provisions are ‘prima facie valid' and a party resisting enforcement carries a heavy burden of showing that the provision itself is invalid due to fraud or overreaching or that enforcement would be unreasonable and unjust under the circumstances.”[11] Solid Q attempts to prove the forum selection clause is invalid or, in the alternative, that it does not apply to this litigation. The clause may valid but it is not applicable.

         1. Waiving federal jurisdiction does not violate the Securities Exchange Act.

         Solid Q argues that the forum selection clause is invalid because it seeks to circumvent 15 U.S.C. § 78aa, which states: “The district courts of the United States . . . shall have exclusive jurisdiction of violations.” Circumventing this provision, according to Solid Q, runs afoul 15 U.S.C. § 78cc, which states: “Any condition, stipulation, or provision binding any person to waive compliance with any provision of this chapter or of any rule or regulation thereunder, or of any rule of a self-regulatory organization, shall be void.”[12] Solid Q does not cite any case where a court disregarded a forum selection clause as violating 15 U.S.C. § 78cc.

         The Supreme Court stated in Shearson/American Exp., Inc. v. McMahon[13] that the jurisdictional statement in § 78aa

does not impose any duty with which persons trading in securities must ‘comply.' By its terms, [§ 78cc] only prohibits waiver of the substantive obligations imposed by the Exchange Act. Because [the jurisdiction statement] does not impose any statutory duties, its waiver does not constitute a waiver of ‘compliance with any provision' of the Exchange Act under [§ 78cc].[14]

         Accordingly, the Supreme Court held that parties may waive the exclusive federal jurisdiction in favor of arbitration.[15] Numerous circuit courts have found that parties may waive the exclusive federal jurisdiction in favor of foreign jurisdiction.[16] And numerous courts have even found that ...


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