K & v Scientific Co. v. Bayerische Motoren Werke Aktiengesellschaft ("BMW")

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
DEC 23 2002
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT

K & V SCIENTIFIC CO., INC., a New
Mexico corporation,

Plaintiff-Appellant,
No. 02-2020
v.

BAYERISCHE MOTOREN WERKE
AKTIENGESELLSCHAFT (“BMW”), a
corporation organized and existing under
the laws of Germany,

Defendant-Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
(D.C. No. CIV-00-1615 BB/DJS)

John W. Boyd (David A. Freedman with him on the brief), Freedman Boyd Daniels
Hollander Goldberg & Cline P.A., Albuquerque, New Mexico, for the appellant.

Edward Ricco (Travis R. Collier and James P. Bieg with him on the brief), Rodey,
Dickason, Sloan, Akin & Robb, P.A., Albuquerque, New Mexico, for the appellee.

Before HENRY, PORFILIO, and BRISCOE, Circuit Judges.

BRISCOE, Circuit Judge.
 Plaintiff K & V Scientific Co., Inc., appeals the district court’s grant of defendant

Bayerische Motoren Werke Aktiengesellschaft's motion to dismiss for improper venue

pursuant to Fed. R. Civ. P. 12(b)(3). We exercise jurisdiction pursuant to 28 U.S.C.

§ 1291, and reverse and remand for further proceedings.

I.

Plaintiff is a New Mexico corporation with its principal place of business in Los

Alamos, New Mexico. Plaintiff is “engaged in development and commercialization of

advanced technology products and processes,” including “automotive safety product

engineering.” App. at 8. Alan Kammerman, who along with his wife Rosalie owns

plaintiff, “is an engineer and scientist” who specializes “in marrying sophisticated

technologies for new applications.” Id.

In 1995, plaintiff began “developing concepts for advanced automotive safety

systems, including . . . the use of semiconductor bridge technology as the foundation for

‘smart’ systems for triggering air bags.”1 Id. at 11. The semiconductor bridge technology

was first developed by Sandia Laboratories for use in certain defense programs, and was

subsequently transferred to SCB Technologies, Inc. (SCBT), a corporation formed for the

purpose of commercializing the technology. In early 1996, SCBT, its sister company The

1
According to plaintiff’s complaint, a “semiconductor bridge is a heavily doped,
micron-sized polysilicon bridge that bursts into a plasma discharge when a low energy
firing pulse is applied,” and “[a] semiconductor bridge igniter utilizes a semiconductor
bridge as the ignition element to ignite a pyrotechnic material for inflating air bags.”
App. at 10.

2
Ensign-Bickford Company, and its parent corporation Ensign-Bickford Industries, Inc.,

entered into agreements with plaintiff, pursuant to which the three companies

“encouraged [plaintiff] to pursue relationships with the auto industry and agreed . . . to

protect [plaintiff’s] work-product.”2 Id. at 11-12.

In 1996, plaintiff contacted defendant, a German corporation based in Munich and

engaged in the design and manufacture of automobiles. Defendant expressed interest in

the igniter technology. On July 8, 1996, plaintiff and defendant signed a confidential

disclosure agreement to allow them to “evaluat[e] the . . . technology for potential

implementation in vehicles manufactured by [defendant].” Id. at 30. After entering into

the agreement, the parties began disclosing confidential information to each other so they

could explore the possibility of using the igniter technology in defendant’s air bag

systems. Further, in November 1996, the parties met in Munich and agreed that plaintiff

would “design for [defendant's] ‘next generation’ air bag system[s].” Id. at 13. At the

same time, plaintiff and defendant “agreed on a schedule for development and

manufacture extending into the year 2005.” Id.

On January 27, 1997, without any prior discussion or solicitation, defendant mailed

plaintiff a new confidentiality agreement signed by an authorized representative of

defendant. The stated purpose of the new agreement was to allow the parties “to

2
It is unclear from the record precisely how plaintiff first learned of the
technology, or how it began adapting the technology prior to entering into agreements
with the three companies.

3
exchange confidential information” regarding a “Squib for Airbag,” and to “avoid any

misuse of such information.” Id. at 33. Unlike the July 1996 agreement, the new

agreement contained a jurisdictional and choice of law provision which stated:

“Jurisdiction for all and any disputes arising out of or in connection with this agreement is

Munich. All and any disputes arising out of or in connection with this agreement are

subject to the laws of the Federal Republic of Germany.” Id. at 34. Plaintiff signed the

agreement on February 4, 1997.

After the new agreement was signed, defendant allegedly requested that plaintiff

proceed with the igniter design and allegedly reassured plaintiff that, assuming defendant

used the technology for its air bag system, the parties would then work out the financial

details of their relationship. Plaintiff continued its development work and ultimately

provided defendant “with a series of sophisticated designs for interfacing a semiconductor

bridge igniter with [defendant's] air bag systems needs.” Id. at 14.

Further communication between plaintiff and defendant followed, including

another meeting in Munich. Plaintiff alleges that following that meeting, defendant asked

plaintiff to “make an offer for development and production of a new air bag igniter.” Id.

at 15. In response, plaintiff “expressed a willingness either to appropriately license the

necessary technology from SCBT, or to become partners with SCBT and The Ensign-

Bickford Company and its parent corporation, in pursuing the BMW opportunity.” Id.

Ensign-Bickford, however, “insisted that [plaintiff] not submit any pricing proposal to

4
[defendant] that Ensign-Bickford had not approved.” Id.

Although plaintiff alleges it made a number of proposals to Ensign-Bickford in

1997, no agreement was reached. In September 1997, defendant contacted plaintiff “and

finally informed [plaintiff] that [defendant] did not intend to pursue any business

activities with [plaintiff].” Id. at 19. Plaintiff alleges that defendant, Ensign-Bickford

and SCBT then proceeded to engage “in the development and manufacture of the 'next-

generation' air bag igniter system that [plaintiff] designed and promoted.”3 Id. at 20. To

date, plaintiff has received no compensation from defendant for its development work.

Plaintiff filed suit against defendant in New Mexico state court, asserting claims

for (1) breach of the July 8, 1996, confidential disclosure agreement, (2) breach of the

February 4, 1997, confidentiality agreement, (3) breach of the duty of good faith and fair

dealing, (4) unjust enrichment/quantum meruit, (5) violation of New Mexico’s Trade

Secrets Act, (6) violation of New Mexico’s Unfair Trade Practices Act, (7) estoppel to

deny partnership and breach of partnership agreement, (8) fraud, and (9) breach of

fiduciary duty. Defendant removed the case to federal court and moved to dismiss

pursuant to Fed. R. Civ. P. 12(b)(2) and (3) for lack of personal jurisdiction and improper

venue. The district court granted defendant’s motion to dismiss for improper venue. In

doing so, the district court concluded that the forum selection clause contained in the

February 4, 1997, confidentiality agreement was “unambiguous and enforceable,” and

3
Defendant denies that it has made commercial use of plaintiff’s designs.

5
demonstrated “[t]he parties’ intent to locate jurisdiction for this action solely in the courts

of Munich.” Id. at 392.

II.

On appeal, plaintiff asserts the district court erred in dismissing its complaint for

improper venue. In particular, plaintiff disputes the district court’s conclusion that the

forum selection clause contained in the February 4, 1997, confidentiality agreement

mandates that any litigation between the parties be conducted exclusively in Munich,

Germany. According to plaintiff, “[t]he language of the clause at issue . . . contains no

reference to venue, contains no language designating the courts of Munich exclusive, and

contains no language indicating that suit elsewhere is impermissible.” Aplt. Br. at 16.

Plaintiff further notes that defendant drafted the confidentiality agreement in general, and

the forum selection clause in particular, and therefore the clause must be construed

against defendant if it is deemed ambiguous.

“A motion to dismiss based on a forum selection clause frequently is analyzed as a

motion to dismiss for improper venue under Fed. R. Civ. P. 12(b)(3).” Riley v. Kingsley

Underwriting Agencies, Ltd., 969 F.2d 953, 956 (10th Cir. 1992). “The enforceability of

[a] forum selection” clause is a “question[] of law which we review de novo.”4 Id.; see

4
The district court concluded that the interpretation of the forum selection clause
at issue was a matter of federal common law. Because neither party has disputed this
conclusion, we will treat the choice of law rules employed by the district court as the law
of the case. See Coca-Cola Bottling Co of Ogden v. Coca-Cola Co., 4 F.3d 930, 933 n.3
(10th Cir. 1993).

6
also Excell, Inc. v. Sterling Boiler & Mech., Inc., 106 F.3d 318, 320 (10th Cir. 1997)

(noting that de novo review is appropriate because the issue turns on an analysis of the

language of a contractual clause); SBKC Serv. Corp. v. 1111 Prospect Partners, L.P., 105

F.3d 578, 581 (10th Cir. 1997) (holding that “construing the clause is a matter of contract

interpretation that we review de novo”).

Plaintiff does not dispute the general validity of the forum selection clause

contained in the parties’ February 4, 1997, confidentiality agreement. See generally M/S

Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972) (holding that forum selection

clauses contained in international arms-length contracts are considered to be prima facie

valid); Riley, 969 F.2d at 957 (“When an agreement is truly international, as here, and

reflects numerous contacts with the foreign forum, the Supreme Court has quite clearly

held that the parties’ choice of law and forum selection provisions will be given effect.”).

Instead, plaintiff contends that the forum selection clause at issue is permissive, rather

than mandatory, and therefore does not require litigation in Munich. See Citro Florida,

Inc. v. Citrovale, S.A., 760 F.2d 1231, 1232 (11th Cir. 1985) (noting that “[t]he Bremen

court did not reach the distinctions between mere 'consent to jurisdiction' clauses and

'mandatory' clauses”).

This court and others have “frequently classified” forum selection clauses “as

either mandatory or permissive.” Excell, 106 F.3d at 321. “Mandatory forum selection

clauses contain clear language showing that jurisdiction is appropriate only in the

7
designated forum.” Id. (internal quotations omitted). “In contrast, permissive forum

selection clauses authorize jurisdiction in a designated forum, but do not prohibit

litigation elsewhere.” Id. (internal quotations omitted).

In addressing the mandatory/permissive issue, the district court concluded there

was “a distinct lack of cohesion among” federal circuit decisions, which the district court

attributed to “semantic hairsplitting.” App. at 389 (internal quotations omitted). The

district court therefore purported to rely exclusively on Tenth Circuit precedent in

general, and our decision in Milk ‘N’ More, Inc. v. Beavert, 963 F.2d 1342 (10th Cir.

1992), in particular. In Milk ‘N’ More, we concluded that a forum selection clause

stating “venue shall be proper under this agreement in Johnson County, Kansas” was

mandatory. 963 F.2d at 1346. Based upon our holding in Milk ‘N’ More, the district

court concluded that the relevant language of the forum selection clause at issue here, i.e.,

“jurisdiction . . . is Munich,” was unambiguous and mandatory. App. at 390. The district

court also concluded that the choice of law provision contained in the parties’

confidentiality agreement “support[ed] the interpretation that jurisdiction is to be located

exclusively in a court best suited to interpret and apply German law, e.g., Munich.” Id. at

391. Finally, in a footnote, the district court noted that defendant was a “sophisticated

global company with ample legal resources to devote to its international contracts,” and

“would be well-advised to study American jurisprudence and draft forum selection

clauses including specific ‘exclusivity’ language, so as to leave no doubt regarding the

8
clauses’ enforceability.” Id. In that same footnote, the district court cited a federal

district court opinion involving a forum selection clause drafted by defendant that stated

“the exclusive jurisdiction for disputes concerning . . . this agreement is . . . Germany.”

Id. (citing Caribe BMW, Inc. v. BMW, 821 F. Supp. 802, 818-19 (D. P.R. 1993)).

We reject the district court’s analysis for several reasons. First, virtually all of the

Tenth Circuit cases dealing with forum selection clauses are distinguishable from the

instant case. In other words, no Tenth Circuit case to date has dealt with a forum

selection clause similar to the one at issue. Thus, contrary to the conclusion reached by

the district court, Tenth Circuit precedent in general, and the Milk ‘N’ More decision in

particular, are of little assistance in resolving the current dispute.

Second, contrary to the conclusion reached by the district court, case law from

other circuits involving forum selection clauses similar to the one at issue here is

surprisingly uniform. Generally speaking, the circuits that have addressed the issue are in

agreement that

where venue is specified [in a forum selection clause] with mandatory or
obligatory language, the clause will be enforced; where only jurisdiction is
specified [in a forum selection clause], the clause will generally not be
enforced unless there is some further language indicating the parties’ intent
to make venue exclusive.

Paper Express, Ltd. v. Pfankuch Maschinen GmbH, 972 F.2d 753, 757 (7th Cir. 1992);

see John Boutari & Son, Wines & Spirits, S.A. v. Attiki Imp. & Distrib. Inc., 22 F.3d 51,

52 (2d Cir. 1994) (same); Docksider, Ltd. v. Sea Tech., Ltd., 875 F.2d 762, 764 (9th Cir.

9
1989) (same); Citro Florida, 760 F.2d at 1232 (concluding that language of forum

selection clause discussing jurisdiction in nonexclusive language reasonably could be

construed as permissive); Keaty v. Freeport Indonesia, Inc., 503 F.2d 955, 957 (5th Cir.

1974) (same). Applying this rule, these circuits (and the district courts within them) have

held the following forum selection clause language to be permissive:

* “Any dispute arising between the parties hereunder shall come within the
jurisdiction of the competent Greek Courts, specifically of the Thessaloniki
Courts.” John Boutari, 22 F.3d at 52.

* “The laws and courts of Zurich are applicable.” Caldas & Sons, Inc. v.
Willingham, 17 F.3d 123, 127 (5th Cir. 1994).

* “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., 817 F.2d 75, 76 (9th Cir. 1987).

* “Place of jurisdiction is Sao Paulo/Brazil.” Citro Florida, 760 F.2d at
1231 (concluding phrase was ambiguous and, when construed against
drafter, was permissive).

* “This agreement shall be construed and enforceable according to the law
of the State of New York and the parties submit to the jurisdiction of the
courts of New York.” Keaty, 503 F.2d at 956 (concluding phrase was
ambiguous and, when construed against drafter, was permissive).

* “This agreement shall be governed by and construed in accordance with
the laws of the Federal Republic of Germany. * * * Place of jurisdiction
shall be Dresden.” Hull 753 Corp. v. Elbe Flugzeugwerke GmbH, 58 F.
Supp. 2d 925, 926 (N.D. Ill. 1999).

Applying the same rule, these courts have held the following clauses to be mandatory:

* “[P]lace of jurisdiction . . . is the registered office of the trustee [in
Germany], to the extent permissible under the law.” Frietsch v. Refco, Inc.,

10
 56 F.3d 825, 827 (7th Cir. 1995); see id. at 829 (concluding that the phrase
“to the extent permissible under the law” “would have no function if the
[forum selection] clause were not mandatory–if, in other words, a party
could sue anywhere he wanted”).5

* “In all disputes arising out of the contractual relationship, the action shall
be filed in the court which has jurisdiction for the principal place of
business of the supplier . . . . The supplier also has the right to commence
an action against the purchaser at the purchaser’s principal place of
business.” Paper Express, 972 F.2d at 755; id. at 756 (concluding the last
sentence “would be appropriate and meaningful only if the clause were in
fact mandatory”).

* “Licensee hereby agrees and consents to the jurisdiction of the courts of
the State of Virginia. Venue of any action brought hereunder shall be
deemed to be in Gloucester County, Virginia.” Docksider, 875 F.2d at 763.

The only circuit that has adopted an arguably different rule is the Sixth Circuit. In

General Electric Co. v. G. Siempelkamp GmbH & Co., 29 F.3d 1095 (6th Cir. 1994), a

case cited by defendant in its appellate brief, the court was asked to interpret a forum

selection clause that read as follows:

Place of jurisdiction for all disputes arising in connection with the contract
shall be at the principal place of business of the supplier. This shall also
apply for claims in summary procedures on bills of exchange, promissory
notes or cheques. The supplier is also entitled to file a suit at the principal
place of business of the purchaser.

Id. at 1097. In construing the clause, the Sixth Circuit cited only the Bremen decision,

5
Although defendant suggests that Frietsch supports its position, defendant is off-
base. The Seventh Circuit adopted the analytical framework outlined above in Paper
Express, 972 F.2d at 757, a case that predates Frietsch. In addition, the language of the
forum selection clause at issue in Frietsch is distinguishable from the language of the
forum selection clause at issue here.

11
which did not involve a mandatory/permissive dispute, and concluded that, “[b]ecause the

clause states that ‘all’ disputes ‘shall’ be at [defendant’s] principal place of business, it

selects German court jurisdiction exclusively and is mandatory.” Id. at 1099. Although

this brief explanation would provide support for defendant's position if viewed in

isolation, it must be emphasized that the forum selection clause at issue in General

Electric contains additional language that, under the analytical framework outlined above,

leads to the conclusion that it is mandatory. In particular, the last sentence of the clause,

which affords the supplier with the right “to file a suit at the principal place of business of

the purchaser,” lends support to the conclusion that the first sentence of the clause,

placing jurisdiction for “all” disputes at the principal place of business of the supplier,

was intended to confer exclusive jurisdiction. In other words, the clause, read as a whole,

appears to require any disputes filed by the purchaser to be resolved exclusively at the

principal place of business of the supplier.

Applying the majority rule, which we believe is sound, to the facts before us, we

have little trouble concluding that the forum selection clause at issue is permissive. In

particular, the clause refers only to jurisdiction, and does so in non-exclusive terms (e.g.,

there is no use of the terms “exclusive,” “sole,” or “only”). Cf. Caribe BMW, 821 F.

Supp. at 818-19 (finding forum selection clause stating “the exclusive jurisdiction for

disputes . . . is . . . Germany” to be mandatory). Even if the clause were deemed to be

ambiguous (i.e., capable of being construed as either permissive or mandatory), the rule in

12
this circuit and others is that the clause must be construed against the drafter, in this case

defendant. See Milk ‘N’ More, 963 F.2d at 1346 (holding “if there is any ambiguity in

the clause [the court] should construe it against the drafter”). Accordingly, the clause

would be deemed permissive. See Caldas & Sons, 17 F.3d at 127 (construing ambiguous

forum selection clause against drafter as permissive); Citro Florida, 760 F.2d at 1232

(construing ambiguous forum selection clause against drafter “as a non-exclusive consent

to jurisdiction”); Keaty, 503 F.2d at 957 (same).

Third, we find little support in Tenth Circuit case law, or in case law from other

circuits, for the district court’s decision to infer from the parties’ choice of law provision

that the forum selection clause is mandatory. Although the district court obviously was

correct in noting that German courts are better prepared to apply German law than

American courts, the parties’ choice of law provision (even assuming that it is binding

and controls all of plaintiff’s claims) appears to carry little, if any, weight in determining

whether the parties’ forum selection clause was intended as mandatory or permissive.

Finally, the Caribe BMW decision, cited by the district court in a footnote, clearly

demonstrates that defendant knows how to draft mandatory forum selection clauses, and

thus supports our conclusion that the clause at issue is permissive. See 821 F. Supp. at

818-19 (finding forum selection clause stating “the exclusive jurisdiction for disputes . . .

is . . . Germany” to be mandatory).

13
 We REVERSE the judgment of the district court and REMAND for further

proceedings.

14