O'Neill Farms, Inc. v. Reinert

#25302-rev & rem-GAS

2010 SD 25

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

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O’NEILL FARMS, INC., Plaintiff and Appellant,

v.

TODD REINERT d/b/a
ROCKIN’ R FARMS, Defendant and Appellee.

* * * *

APPEAL FROM THE CIRCUIT COURT OF
THE SIXTH JUDICIAL CIRCUIT
TODD COUNTY, SOUTH DAKOTA

* * * *

HONORABLE KATHLEEN F. TRANDAHL
Judge

* * * *

STANLEY E. WHITING
Winner, South Dakota Attorney for plaintiff
and appellant.

J.M. GROSSENBURG
Hill City, South Dakota Attorney for defendant
and appellee.

* * * *

CONSIDERED ON BRIEFS
ON JANUARY 11, 2010

OPINION FILED 03/10/10
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SEVERSON, Justice

[¶1.] Tony O’Neill, a South Dakota resident and vice president of O’Neill

Farms, Inc. (O’Neill Farms), commenced this breach of contract action against Todd

Reinert in Todd County, South Dakota. The suit was based on disputes arising

from a written agreement under which O’Neill Farms, a South Dakota corporation,

leased to Reinert a 2007 John Deere combine. Reinert contacted O’Neill in response

to a “combine for lease” advertisement and, after negotiations, signed a lease

agreement that included a forum-selection clause. The clause stated: “if any legal

action is taken it will be in Todd Co. SD[.]” Despite this clause, Reinert, a resident

of Texas, filed a motion to dismiss for lack of personal jurisdiction. The circuit court

granted this motion and dismissed O’Neill Farms’ action. The circuit court

concluded: (1) the forum-selection clause was unreasonable, and therefore,

unenforceable; and, (2) because the forum-selection clause was unreasonable,

imposing personal jurisdiction on Reinert would violate due process. O’Neill Farms

appeals.

FACTS AND BACKGROUND

[¶2.] O’Neill Farms is a South Dakota corporation that farms in Bennett

County and Todd County, South Dakota, and also leases farm equipment to farmers

and commercial harvesters. Tony O’Neill is the vice president and registered agent

of the corporation. The farming operation is near the Nebraska/South Dakota

border, and the mailing address of O’Neill Farms and Tony O’Neill is HC 77 Box

33A, Cody, Nebraska, 69211. As part of O’Neill Farms’ combine rental business, it

places advertisements in the High Plains Journal, a farm magazine published in

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Dodge City, Kansas. Todd Reinert, who had previously leased from O’Neill, read an

advertisement in the Journal and contacted O’Neill at the South Dakota phone

number listed.

[¶3.] Without assistance of counsel, O’Neill drafted a two-page combine

lease. The lease was written on O’Neill Cattle Company, Inc. letterhead. O’Neill

Cattle Company is also a South Dakota company, but is a separate corporation from

O’Neill Farms. The letterhead for O’Neill Cattle Company included the Cody,

Nebraska, address and the same South Dakota phone number as the

advertisement. The letterhead also included a fax number with the South Dakota

area code. Neither party challenges the existence or validity of the lease between

O’Neill Farms and Reinert. The lease also included a forum-selection clause. The

parties conceded that they have transacted business before and that the prior lease

was similar. It is undisputed that the parties conducted conversations over the

phone with Reinert initiating at least two of the conversations. As a result of these

negotiations, at least one term of the lease was amended.

[¶4.] On August 10, 2007, O’Neill signed the lease and sent it to Reinert.

On August 19, O’Neill shipped the combine from South Dakota to Ness City,

Kansas, where it remained until Reinert signed the lease and paid the rent.

Reinert signed the lease in Texas on September 15, 2007. Once O’Neill received

payment, the combine was shipped from Ness City, Kansas, to Dumas, Texas.

Various problems arose with the combine, and disputes developed regarding each

party’s responsibilities under the lease. Ultimately, O’Neill sent a truck to

transport the combine back to South Dakota. O’Neill Farms subsequently served a

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summons and complaint on Reinert in Texas for breach of the lease claiming non-

payment of numerous obligations. Reinert responded with an answer and

counterclaim also alleging breach of contract.

[¶5.] On December 9, 2008, Reinert filed a SDCL 15-6-12(b)(2) motion to

dismiss for lack of personal jurisdiction and submitted an affidavit in support. The

circuit court conducted a review of the record and issued a memorandum decision on

May 15, 2009, granting Reinert’s motion. The circuit court concluded that the

forum-selection clause was unreasonable, and therefore, unenforceable. Based upon

its decision that the forum-selection clause was unreasonable, the circuit court also

decided that “to impose personal jurisdiction on Defendant would necessarily

deprive Defendant of fair play and substantial justice” and would “run afoul” of

Reinert’s due process guarantee under the Fourteenth Amendment. O’Neill Farms

appeals the circuit court’s ruling. We reverse.

ISSUES

[¶6.] We restate the issues:

1. Whether the circuit court erred in concluding Reinert made a
strong showing that the forum-selection clause was unreasonable
under the circumstances.

2. Whether the circuit court erred in concluding that imposing in
personam jurisdiction on Reinert would deprive him of fair play and
substantial justice.

STANDARD OF REVIEW

[¶7.] “‘We review issues regarding a court’s jurisdiction as questions of law

under the de novo standard of review.’” Daktronics, Inc. v. LBW Tech Co. Inc., 2007

SD 80, ¶2, 737 NW2d 413, 416 (quoting Grajczyk v. Tasca, 2006 SD 55, ¶8, 717

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NW2d 624, 627). In Guthmiller v. Deloitte & Touche, LLP, we discussed the proper

standard of review for a motion to dismiss under SDCL 15-6-12(b):

A motion to dismiss under SDCL 15-6-12(b) tests the legal
sufficiency of the pleading, not the facts which support it. For
purposes of the pleading, the court must treat as true all facts
properly pled in the complaint and resolve all doubts in favor of
the pleader. “Our standard of review of a trial court’s grant or
denial of a motion to dismiss is the same as our review of a
motion for summary judgment-is the pleader entitled to
judgment as a matter of law?” Thus, all reasonable inferences of
fact must be drawn in favor of the non-moving party and we give
no deference to the trial court’s conclusions of law.

2005 SD 77, ¶4, 699 NW2d 493, 496 (quoting Vitek v. Bon Homme County Bd. of

Com’rs, 2002 SD 100, ¶7, 650 NW2d 513, 516).

ANALYSIS AND DECISION

[¶8.] 1. Whether the circuit court erred in concluding Reinert
made a strong showing that the forum-selection clause
was unreasonable.

[¶9.] Our prior case law makes clear that parties “may contractually specify

and consent to a state’s jurisdiction over legal actions which arise under a contract.”

Baldwin v. Heinold Commodities, Inc., 363 NW2d 191, 194 (SD 1985) (citing Nat’l

Equip. Rental v. Szukhent, 375 US 311, 84 SCt 411, 11 LEd2d 354 (1964)); see

Green v. Clinic Masters, Inc., 272 NW2d 813, 815 (SD 1978) (holding forum-

selection clauses are enforceable unless unreasonable); see also Burger King v.

Rudzewicz, 471 US 462, 473 n14, 105 SCt 2174, 2182 n14, 85 LEd2d 528 (1985)

(“[P]arties frequently stipulate in advance to submit their controversies for

resolution within a particular jurisdiction. Where such forum-selection provisions

have been obtained through ‘freely negotiated’ agreements and are not

‘unreasonable and unjust,’ their enforcement does not offend due process.”) (internal

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citations omitted). Furthermore, “forum-selection clauses are prima facie valid and

should be enforced unless enforcement is shown by the resisting party to be

‘unreasonable’ under the circumstances.” Klenz v. AVI Intern., 2002 SD 72, ¶36, 647

NW2d 734, 741 (Konenkamp, J., concurring in result) (quoting M/S Bremen v.

Zapata Off-Shore Co., 407 US 1, 10, 92 SCt 1907, 1913, 32 LEd2d 513, 520 (1972)),

Additionally, a forum-selection clause should be enforced unless “the clause was

invalid for such reasons as fraud or overreaching[,]” or “if enforcement would

contravene a strong public policy of the forum in which it is brought.” Bremen, 407

US at 15, 92 SCt at 1916. The burden is on the resisting party to make a “strong

showing . . . that enforcement would be unreasonable and unjust, or that the clause

was invalid for such reasons as fraud or overreaching.” Id. (emphasis added).

[¶10.] The parties do not dispute the presumption of validity of the forum-

selection clause. Furthermore, Reinert does not dispute his knowledge of the clause

in the agreement, contend he was the victim of fraud or overreaching, or argue that

enforcement would violate strong public policy of South Dakota. See Bremen, 407

US at 15-18, 92 SCt at 1916-17. Rather, Reinert relies on the circuit court’s

balancing of the Baldwin factors and conclusion that because more factors weighed

in favor of Texas, enforcement of this clause would be unreasonable. On appeal,

O’Neill Farms contends that the circuit court erred in concluding that Reinert made

a “strong showing” of unreasonableness and takes issue with the circuit court’s

analysis and application of the Baldwin factors. Specifically, O’Neill asserts that

the circuit court: gave too much weight to the location of witnesses; erroneously

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concluded Texas law controlled construction of the contract; and, improperly applied

the place of execution or performance factor.

[¶11.] Because fraud, overreaching, and contravention of public policy are not

at issue in this case, we review this issue to determine whether Reinert rebutted the

presumption of enforceability by making a “strong showing” that the forum selected,

South Dakota, is “unreasonable,” i.e., that trial in the contractual forum will be “so

gravely difficult and inconvenient that he will for all practical purposes be deprived

of his day in court.” Klenz, 2002 SD 72, ¶36, 647 NW2d at 741 (Konenkamp, J.,

concurring in result) (quoting Bremen, 407 US at 18, 92 SCt at 1917). In reviewing

the reasonableness of a forum-selection clause, the following factors have been

considered:

1. The law which governs the formation and construction of
the contract;
2. The residency of the parties;
3. The place of execution and/or performance of the contract;
and
4. The location of the parties and the witnesses probably
involved in the litigation.

Baldwin, 363 NW2d at 194 (citation omitted). Other factors that many courts have

looked to in applying the reasonableness standard include:

5. The availability of remedies in the designated forum; 1 and

6. Whether the drafter “has a special interest in limiting the fora
in which it potentially could be subject to suit.” 2

1. See Green, 272 NW2d at 815 (citing R. Leflar, American Conflicts Law § 52,
at 100-101 (3rd ed 1977)); Hoffman v. Burroughs Corp., 571 FSupp 545, 549
(DCTex 1982) (citation omitted).

2. Carnival Cruise Lines v. Shute, 499 US 585, 593, 111 SCt 1522, 1527, 113
LEd2d 622 (1991).

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[¶12.] The first factor is determined by applying SDCL 53-1-4, South

Dakota’s choice of law statute regarding contracts. It provides: “A contract is to be

interpreted according to the law and usage of the place where it is to be performed

or, if it does not indicate a place of performance, according to the law and usage of

the place where it is made.” Id. Because this lease does not provide a place of

performance, the law of the place the contract was made controls. “The test of the

place of a contract is the place where the last act is done by either of the parties

which is necessary to complete the contract and give it validity.” Briggs v. United

Servs. Life Ins. Co., 80 SD 26, 30, 117 NW2d 804, 807 (1962) (citation omitted). In

this case, O’Neill signed the contract and then forwarded it to Texas for Reinert’s

signature. When Reinert signed the lease, the last act necessary to form a valid

contract was complete. Therefore, Texas law controls the interpretation of the

contract.

[¶13.] Regarding this first factor, O’Neill argues South Dakota law should

control because O’Neill Farms had to receive payment before the combine would be

delivered. While unclear from the briefs, O’Neill appears to argue that receipt of

payment was a condition precedent to the existence of a valid contract. The lease

states: “It is agreed that the owner will receive a check before the delivery of this

combine.” This clause was not a condition precedent to the validity of the contract.

Rather, this clause was a “limitation on the contractual obligations of the parties” in

a completed, valid contract. See Johnson v. Coss, 2003 SD 86, ¶13, 667 NW2d 701,

705-06 (quoting 13 Richard A. Lord, Williston on Contracts § 38:1 (4th ed 2000)).

Therefore, the circuit court correctly determined Texas law controlled interpretation

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of the contract because the last act “necessary to complete the contract and give it

validity” occurred in Texas. Briggs, 80 SD 26, 30, 117 NW2d at 807 (citation

omitted).

[¶14.] The next factor in analyzing the reasonableness of a forum-selection

clause is the residency of the parties. Baldwin, 363 NW2d at 194. The circuit court

determined that “[t]his factor is not central as to the final resolution of the motion

because it weighs evenly between the parties.” Indeed, one party resides in South

Dakota, and one party resides in Texas. However, we disagree that this weighs

evenly as to the reasonableness of the forum-selection clause. See Bremen, 407 US

at 17, 92 SCt at 1917 (“We are not here dealing with an agreement between two

Americans to resolve their essentially local disputes in a remote alien forum. In

such a case, the serious inconvenience of the contractual forum to one or both of the

parties might carry greater weight in determining the reasonableness of the forum

clause.”). This forum-selection clause did not transfer an “essentially local dispute”

to a forum that was alien to the parties. In this case, we have a South Dakota

resident and a Texas resident attempting to resolve an essentially local dispute in

one of two local forums. See Klenz, 2002 SD 72, ¶40 n*, 647 NW2d at 742 n*

(Konenkamp, J., concurring in result) (“South Dakota does have a significant

interest in providing citizens with a forum in which to resolve disputes[.]”).

Therefore, because “[t]he forum selected is the home of one of the parties to the

contract and, thus, has a reasonable relationship to the transaction,” this factor

provides no evidence of unreasonableness. Vanier v. Ponsoldt, 251 Kan 88, 101, 833

P2d 949, 959 (1992).

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[¶15.] The third factor in analyzing the reasonableness of a forum-selection

clause is the place of execution or performance of the contract. Baldwin, 363 NW2d

at 194. The circuit court determined that because performance occurred in both

states, the place of execution controlled this factor. We disagree. The contract’s

partial performance in South Dakota where payment was received and where the

combine was shipped from make South Dakota a reasonable state as the chosen

forum. As to execution of the contract, the circuit court reasoned that this lease was

“executed” in Texas when Reinert signed the contract. See, e.g., Black’s Law

Dictionary 321 (7th ed 1999) (stating an “executed contract” is “[a] signed contract”

or “[a] contract that has been fully performed by both parties”). According to this

definition, this contract was partially executed in both South Dakota, where O’Neill

signed, and in Texas, where Reinert signed. Because execution and performance

occurred in both states, this factor provides no evidence of unreasonableness.

[¶16.] The fourth factor is the location of the parties and witnesses probably

involved in the litigation. Baldwin, 363 NW2d at 194. We have stated that

“convenience of witnesses and accessibility of records . . . are not sufficient reasons

to allow parties to a contract to disavow their promises.” Green, 272 NW2d at 816

(citation omitted). While the location of the witnesses is not determinative, it is a

valid factor to be considered. It appears from the record that parties and witnesses

are located in both South Dakota and Texas; and, the combine was last located in

South Dakota. The circuit court concluded that because Reinert stated in his

affidavit that the majority of witnesses are located in Texas, this factor weighed in

favor of the forum-selection clause being unreasonable. The weight afforded this

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factor is not significant because the witnesses may not have to be transported to

South Dakota. As other courts have recognized, defendants can receive a fair

hearing “by using deposition testimony of its witnesses from distant places.” See

Bremen, 407 US at 19, 92 SCt at 1918.

[¶17.] The fifth factor is the availability of a remedy in the designated

forum. Hoffman, 571 FSupp at 549. South Dakota and Texas are well equipped to

afford relief to either party in this case. Consequently, this factor provides no

evidence of unreasonableness.

[¶18.] The final factor applicable to this case is found in Carnival Cruise

Lines v. Shute, 499 US 585, 596, 111 SCt 1522, 1529, 113 LEd2d 622 (1991). In

Carnival Cruise Lines, the Supreme Court enforced a non-negotiated, boiler-plate

agreement between unequal participants. While those are not the facts of this case,

and we need not address Carnival’s application in its entirety, the reasoning

adopted by the United States Supreme Court is instructive. In analyzing the

reasonableness of the forum clause, the Court noted that a corporate defendant “has

a special interest in limiting the fora in which it potentially could be subject to suit”

when it deals with individuals from many locations. Carnival Cruise Lines, 499 US

at 596, 111 SCt at 1529. O’Neill Farms shares the same concerns the Supreme

Court recognized in Carnival. Because O’Neill Farms’ combine rental business

leases harvesters throughout the Midwest, including a forum-selection clause in its

contracts is reasonable. O’Neill Farms has a legitimate reason to limit venue to the

state where its principal place of business is located so as to dispel confusion as to

where suit can be brought and defended. Id.

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[¶19.] In deciding that the forum-selection clause was unreasonable, the

circuit court completed a balancing of the four Baldwin factors, essentially placing

each factor on one side of a scale. The circuit court acknowledged Justice

Konenkamp’s concurrence in Klenz, stating that forum-selection clauses are “prima

facie valid” and should only be found unenforceable if there is a “strong showing” of

“unreasonableness.” Klenz, 2002 SD 72, ¶36, 647 NW2d at 741 (Konenkamp, J.,

concurring in result) (citation omitted). Nonetheless, the circuit court felt bound to

a four element test under Baldwin and Klenz. After balancing the Baldwin factors,

the circuit court concluded that the forum-selection clause was unreasonable

because under its analysis more factors weighed in favor of Texas. Notwithstanding

the other factors considered in this case, but not in Baldwin, we take this

opportunity to stress that balancing the four factors is insufficient. Forum-selection

clauses are “prima facie valid and should be enforced unless enforcement is shown

by the resisting party to be ‘unreasonable’ under the circumstances.” Klenz, 2002

SD 72, ¶36, 647 NW2d at 741 (Konenkamp, J., concurring in result) (emphasis

added) (quoting Bremen, 407 US at 10, 92 SCt at 1913). In order to be

“unreasonable,” Reinert was required to make a “strong showing” that South

Dakota as a forum would be “so gravely difficult and inconvenient that he will for

all practical purposes be deprived of his day in court[.]” Id. (emphasis added). In

essence, a “strong showing” of “unreasonableness” requires more than balancing the

factors and determining that a forum, other than the forum in the forum-selection

clause, has more factors weighing in its favor.

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[¶20.] This lease was freely negotiated and the result of an arms-length

transaction. Reinert has not made the requisite “strong showing” that South

Dakota, as a forum, is “unreasonable” or “so gravely difficult and inconvenient that

he will for all practical purposes be deprived of his day in court[.]” See Klenz, 2002

SD 72, ¶36, 647 NW2d at 741 (Konenkamp, J., concurring in result) (citing Bremen,

407 US at 15-18, 92 SCt at 1916-17). At most, Reinert has shown he would be

inconvenienced by having to travel to South Dakota, by having to ask his witnesses

to testify in South Dakota, and by having South Dakota’s courts apply Texas law

should the parties litigate here. As recognized above, the weight attached to the

location of witnesses in determining whether Reinert will be deprived of his day in

court is minor because the witnesses may not have to be transported to South

Dakota. See Bremen, 407 US at 19, 92 SCt at 1918 (discussing the use of deposition

testimony). The fact that a South Dakota court will have to apply Texas law and

that Reinert may have to travel to South Dakota is insufficient to constitute a

“strong showing” of unreasonableness. Moreover, considering the other factors,

South Dakota cannot be deemed an unreasonable forum: at least one of the parties

resides here; the agreement was partially performed and executed in South Dakota;

both forums can provide an adequate remedy; and, O’Neill had good reason to

include such a clause. Therefore, the forum-selection clause’s presumption of

validity prevails. Reinert is deemed to have consented to personal jurisdiction or

waived the requirements for personal jurisdiction in South Dakota. Therefore,

Reinert is not relieved from his contractual obligation to litigate in this state.

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CONCLUSION

[¶21.] We hold that Reinert failed to rebut the forum-selection clause’s

presumption of enforceability by making the requisite strong showing of

unreasonableness. Therefore, the circuit court erred in granting Reinert’s motion to

dismiss for lack of personal jurisdiction. Because the circuit court’s ruling on Issue

II was premised on finding the forum-selection clause unreasonable, our contrary

holding regarding the forum-selection clause is dispositive. Therefore, we do not

reach Issue II. See Burger King, 471 US at 473 n14, 105 SCt at 2182 n14.

(“[P]arties frequently stipulate in advance to submit their controversies for

resolution within a particular jurisdiction. Where such forum-selection provisions

have been obtained through ‘freely negotiated’ agreements and are not

‘unreasonable and unjust,’ their enforcement does not offend due process.”) (internal

citations omitted).

[¶22.] Reversed and remanded.

[¶23.] GILBERTSON, Chief Justice, and KONENKAMP, ZINTER, and

MEIERHENRY, Justices, concur.

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