ESC-Toy Ltd. v. Sony Interactive Entertainment LLC

• Court: District Court, D. Nevada
• Decided: January 28, 2021
• Docket: 2:20-cv-00726
• Status: Unknown

Opinion

1 UNITED STATES DISTRICT COURT

2 DISTRICT OF NEVADA

3 ESC-TOY LTD., ) 4 ) Plaintiff, ) Case No.: 2:20-cv-00726-GMN-VCF 5 vs. ) ) ORDER 6 SONY INTERACTIVE ENTERTAINMENT ) 7 LLC, ) ) 8 Defendant. )

9 10 Pending before the Court is Defendant Sony Interactive Entertainment LLC’s 11 (“Defendant’s”) Motion to Change Venue, (ECF No. 62). Plaintiff ESC-Toy Ltd. (“Plaintiff”) 12 filed a Response, (ECF No. 72), and Defendant filed a Reply, (ECF No. 83). For the reasons 13 discussed below, the Court GRANTS Defendant’s Motion to Change Venue. 14 I. BACKGROUND 15 This case arises out of an alleged breach of contract between the parties. (See generally 16 Compl., ECF No. 1). Plaintiff is a Nevada corporation providing collectible merchandising 17 works in the gaming and entertainment industries. (Id. ¶ 1). Defendant, a subsidiary of Sony 18 Corporation of America, is a California limited liability company that develops interactive and 19 digital entertainment, as well as performs research, development, and sales relating to 20 PlayStation videogames, accessories, and online services. (Id. ¶ 2); (Mot. Change Venue 21 (“MCV”) 2:14–17, ECF No. 62). In January 2014, the parties executed a Merchandise License 22 Agreement (“MLA”), which is a written agreement.1 (MLA, Ex. A to Hottinger Decl., ECF No. 23 24 25 1 The MLA was originally set to expire on December 31, 2015, but the agreement was renewed until July 31, 2019. (See MLA, Ex. A to Hottinger Decl., ECF No. 45); (Second MLA Amendment, Ex. C to Khachatourian Decl., ECF No. 32). 1 45). The MLA, and its accompanying Merchandise Schedule, gave Plaintiff a non-exclusive 2 license to design, manufacture, and sell merchandise, such as collectible pins and lanyards, for 3 various PlayStation videogames. (See id.); (Compl. ¶¶ 42–45). The MLA contains a forum 4 selection clause, stating: “Any action or proceeding brought to enforce the terms of this 5 agreement or a Merchandise Schedule or to adjudicate any dispute arising under this agreement 6 must be heard in the courts of San Mateo County, California, or the Northern District of 7 California.” (MLA ¶ 16.7, Ex. A to Hottinger Decl.). 8 Plaintiff asserts that on October 2, 2017, the parties orally entered into another 9 agreement, termed the Exclusive Vendor Agreement (“EVA”). (Compl. ¶ 74). Under the EVA, 10 Plaintiff would be the exclusive vendor providing collectible pins to Defendant; Defendant 11 would include these pins with videogame pre-orders as a promotion to incentivize sales for 12 PlayStation videogames. (Id. ¶¶ 59–74). Plaintiff alleges that the EVA is a new oral contract, 13 separate from the MLA. (Pl. Resp. to MCV 1:4–10, ECF No. 72). Defendant counters that the 14 EVA is an impermissible oral modification of the MLA. (MCV 6:4–10). In any case, Plaintiff 15 claims that Defendant breached the terms of the EVA by not using Plaintiff to provide the 16 collectible pins, in violation of the EVA’s alleged exclusivity provision. (Compl. ¶ 105). 17 Plaintiff filed its Complaint on April 22, 2020, bringing the following causes of action 18 against Defendant: (1) breach of oral contract; (2) unjust enrichment; (3) breach of the implied 19 covenant of good faith and fair dealing; and (4) breach of written contract. (Compl. ¶¶ 102– 20 128). On August 18, 2020, Defendant filed the instant Motion to Change Venue, (ECF No. 21 62), alleging that the MLA’s forum selection clause applies to this action, and thus, the case 22 should be transferred to the Northern District of California. (MCV 1:17–2:12).

23 II. LEGAL STANDARD 24 “For the convenience of parties and witnesses, in the interest of justice, a district court 25 may transfer any civil action to any other district or division where it might have been 1 brought.” See 28 U.S.C. § 1404(a). “Under § 1404(a), the district court has discretion “to 2 adjudicate motions for transfer according to an ‘individualized, case-by-case consideration of 3 convenience and fairness.’” Jones v. GNC Franchising, Inc., 211 F.3d 495, 498 (9th Cir. 2000) 4 (quoting Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 23 (1988)). “Ordinarily, the district 5 court would weigh the relevant factors and decide whether, on balance, a transfer would serve 6 ‘the convenience of the parties and witnesses’ and otherwise promote ‘the interest of justice.’” 7 Atl. Marine Const. Co., Inc., v. U.S. Dist. Ct. W.D. Tex., 571 U.S. 49, 63 (2013) (quoting 28 8 U.S.C. § 1404(a)). 9 However, the analysis changes when the contract at issue contains a valid forum 10 selection clause representing “the parties’ agreement as to the most proper forum.” See id. 11 (quoting Stewart, 487 U.S. at 31). Forum selection clauses are “presumptively valid.” Doe 1 v. 12 AOL LLC, 552 F.3d 1077, 1083 (9th Cir. 2009). “Because a valid forum selection clause is 13 bargained for by the parties and embodies their expectations as to where disputes will be 14 resolved, it should be ‘given controlling weight in all but the most exceptional cases.’” In re 15 Orange, S.A., 818 F.3d 956, 961 (9th Cir. 2016) (quoting Atl. Marine Constr. Co., Inc., 571 16 U.S. at 60). 17 Accordingly, while a motion under § 1404(a) is the proper vehicle to enforce a valid 18 forum selection clause, the district court’s § 1404(a) analysis changes in three ways. See Atl. 19 Marine Const. Co., Inc., 571 U.S. at 59. “First, the plaintiff's choice of forum merits no 20 weight.” Id. at 63. “Second, [the Court] . . . should not consider arguments about the parties’ 21 private interests.” Id. at 64. The Court “may consider arguments about public-interest factors 22 only.” Id. Nonetheless, “[b]ecause those factors will rarely defeat a transfer motion, the

23 practical result is that forum-selection clauses should control except in unusual cases.” Id. 24 Third, “when a party bound by a forum-selection clause flouts its contractual obligation and 25 files suit in a different forum, § 1404(a) transfer of venue will not carry with it the original 1 venue’s choice-of-law rules—a factor that in some circumstances may affect public-interest 2 considerations.” Id. at 64–65. “The party seeking to avoid a forum selection clause bears a 3 ‘heavy burden’ to establish a ground upon which [the court] will conclude the clause is 4 unenforceable.” Doe 1, 552 F.3d at 1083 (quoting M/S Bremen v. Zapata Off–Shore Co., 407 5 U.S. 1, 17 (1972)). 6 III. DISCUSSION 7 A. Motion to Change Venue 8 Defendant puts forth two arguments in support of its request to transfer this case to the 9 Northern District of California: (1) Plaintiff’s claims fall within the scope of the MLA and are 10 therefore subject to the MLA’s forum selection clause; or in the alternative: (2) an analysis of 11 the convenience and fairness factors found in Jones still favors transfer. See 211 F.3d at 498; 12 (MCV 5:26); (Reply to MCV 5: 17–18, ECF No. 83). Below, the Court will address each 13 argument in turn. 14 1. The MLA’s Forum Selection Clause 15 In the present case, the parties entered into an agreement, the MLA, containing a forum 16 selection clause, which the Court presumes valid. Doe 1, 552 F.3d at 1083. The clause 17 provides: “Any action or proceeding brought to enforce the terms of this agreement or a 18 Merchandise Schedule or to adjudicate any dispute arising under this agreement must be heard 19 in the courts of San Mateo County, California, or the Northern District of California.” (MLA ¶ 20 16.7, Ex. A to Hottinger Decl.). 21 However, Plaintiff claims that the forum selection clause of the MLA does not apply to 22 this action because the contract that Defendant allegedly breached, the EVA, is separate from

23 the MLA, and thus, the MLA’s provisions do not govern this dispute. (Pl. Resp. to MCV 1:4– 24 10). In contrast, Defendant posits that the MLA’s forum selection clause does apply to this 25 action because the EVA is merely a modification of the MLA, and thus, the MLA’s provisions 1 govern this dispute.2 (MCV 6:4–10). Accordingly, the Court will first determine whether the 2 MLA’s forum selection clause governs this dispute. 3 An analysis of a forum selection clause begins with an examination of its wording to 4 determine the scope. In general, forum selection clauses covering disputes “arising under” or 5 “stemming from” the agreement are interpreted narrowly, while forum selection clauses 6 containing language such as “arising out of or relating to” the agreement are interpreted more 7 broadly. See Rey v. Rey, 666 Fed. Appx. 675, 676 (9th Cir. 2016); (“stemming from”); 8 Mediterranean Enters., Inc. v. Ssangyong Corp., 708 F.2d 1458, 1464 (9th Cir. 1983) (“arising 9 under”); Cape Flattery Ltd. v. Titan Maritime, LLC, 647 F.3d 914, 922 (9th Cir. 2011) (“arising 10 out of or relating to”). In this case, the MLA’s forum selection clause utilizes only the “arising 11 under” language, meaning that the forum selection clause is narrow in scope. (See MLA ¶ 16.7, 12 Ex. A to Hottinger Decl.). 13 “A narrow forum selection clause covers claims that cannot be adjudicated without 14 analyzing whether the parties were in compliance” with the agreement containing the clause. 15 Rey, 666 Fed. Appx. at 676 (quoting Manetti-Farrow, Inc. v. Gucci America, Inc., 858 F.2d 16 509, 514 (9th Cir. 1988)). This narrow scope extends to disputes and controversies “relating to 17 the interpretation and performance of the contract itself.” Mediterranean Enters., 708 F.2d at 18 1464. In sum, a narrow forum selection clause applies when the resolution of the Plaintiff’s 19 claims requires examination of the agreement containing the clause. See, e.g., Rey, 666 Fed. 20 Appx. at 676 (finding the forum selection clause inapplicable because “the court does not 21 necessarily need to examine [the Agreement] to resolve [Plaintiff’s] claims”). 3 22

23 2 The parties do not dispute that this case could have been brought in the Northern District of California under 28 U.S.C. § 1391(b). 24 3 Broad forum selection clauses, such as those containing language like “arising out of and relating to” apply not 25 only to contractual claims, but also to related statutory or tort claims. Yan Guo v. Kyani, Inc., 311 F.Supp.3d 1130, 1139 (C.D. Cal. 2018) (citing Cape Flattery Ltd. v. Titan Maritime, LLC, 647 F.3d 914, 922 (9th Cir. 2011); LaCross v. Knight Transp., Inc., 95 F.Supp.3d 1199, 1207 (C.D. Cal. 2015)). 1 Here, the MLA’s narrow forum selection clause favors transfer because Plaintiff’s 2 claims require the Court to examine the scope of the MLA. The threshold issue in this case is 3 whether the EVA is a separate contract or a modification of the MLA. For example, the EVA 4 and MLA cover seemingly identical subject matter: Plaintiff’s production of collectible pins for 5 Defendant’s videogames. (See MLA ¶ 16.7, Ex. A to Hottinger Decl.); (Compl. ¶¶ 72–74). The 6 EVA could be construed as simply a modification of the MLA’s Merchandise Schedule, adding 7 an exclusivity term and covering additional videogames, or it could be construed as a 8 completely separate contract, distinct from the MLA’s non-exclusivity and subject matter. 4 9 Regardless, to resolve this dispute, the Court will need to interpret the MLA by analyzing its 10 terms, as well as its general purpose and effect. See, e.g., Eluschuck v. Chem. Engineers 11 Termite Control, Inc., 246 Cal.App.2d 463, 469 (Cal. Ct. App. Nov. 15, 1966) (“An alteration 12 is a modification or change in one or more respects which introduces new elements into the 13 details of the contract, or cancels some of them, but leaves the general purpose and effect 14 undisturbed.”). See also Rey, 66 Fed. Appx. at 676; Mediterranean Enters., 708 F.2d at 1464. 15 As such, resolution of Plaintiff’s claims requires an examination of the MLA, and therefore, its 16 forum selection clause applies to this case. C.f. Morse v. Ten X Holdings, LLC, No. 2:17-cv- 17 00072-JAD-WH, 2017 WL 4079264, at *4 (D. Nev. Sept. 13, 2017) (transferring venue under a 18 narrow forum selection clause when “the court will have to examine and interpret the 19 contracts” to determine whether an unjust enrichment claim could proceed); Infinite Financial 20 Solutions, Inc. v. Strukmyer, LLC, No., 2014 WL 12598866, at *4 (D. Nev. Jan. 28, 2014) 21 (transferring venue when the applicability and validity of the contract containing the forum 22

24 4 The MLA’s Merchandise Schedule gives a non-exclusive license to Plaintiff relating to eleven PlayStation 25 videogames. (See Second MLA Amendment, Ex. C to Khachatourian Decl.). The EVA allegedly gives Plaintiff an exclusive license relating to twenty-five PlayStation videogames, including the eleven from the MLA. (Compl. ¶ 72, ECF No. 1). 1 selection clause was at issue; “the court does not need to, nor should it, reach the merits of the 2 underlying action . . . in evaluating the motion”). 3 To avoid the MLA’s forum selection clause Plaintiff has a “heavy burden” to establish a 4 basis on which the Court will find it unenforceable. See Doe 1, 552 F.3d at 1083. To satisfy 5 this burden, Plaintiff must establish that the public-interest factors overwhelmingly disfavor 6 transfer. Id. The public-interest factors include “the administrative difficulties flowing from 7 court congestion”; “the ‘local interest in having localized controversies decided at home’”; “the 8 interest in having the trial of a diversity case in a forum that is at home with the law that must 9 govern the action”; “the avoidance of unnecessary problems in conflicts of laws”; and “the 10 unfairness of burdening citizens in an unrelated forum with jury duty.” Piper Aircraft Co. v. 11 Reyno, 454 U.S. 235, 241 n.6 (1981). 12 While Plaintiff addresses most5 of these public interest factors, Plaintiff does not meet its 13 heavy burden to establish exceptional circumstances worthy of defeating the bargained-for 14 forum selection clause. First, Plaintiff disregards the administrative difficulties of court 15 congestion, pointing out that “‘the Court should not transfer a case on the basis of docket 16 congestion after determining the balance of the other factors weighs against transfer.’” (Resp. 17 to MCV 20:13–22, ECF No. 72 (citing Costco Wholesale Corp. v. Liberty Mut. Ins. Co., 472 18 F.Supp.2d 1183, 1196 (S.D. Cal. 2007)). However, the Court is transferring this case based on 19 the presence of a valid forum selection clause, not because of docket congestion. In fact, the 20 Court is only considering congestion as an opportunity for Plaintiff to meet its burden to 21 disfavor transfer. See Piper Aircraft, 454 U.S. at 241 n.6. However, Plaintiff does not assert 22 that the Northern District of California’s docket is more congested than the District of

23 Nevada’s. To the contrary, as Defendant points out, the District of Nevada’s docket is far more 24

25 5 Plaintiff does not address the burdens of jury duty. 1 congested than the Northern District of California’s, and thus, this factor does not aid Plaintiff 2 in meeting its heavy burden to show that the forum selection clause is unenforceable.6 3 Further, Plaintiff claims that it has a localized interest in the dispute because the 4 controversy arises out of conduct taking place within the District of Nevada. (Resp. to MCV 5 19:8–27). However, as a California corporation located within the Northern District of 6 California, Defendant similarly asserts that the dispute arises out of conduct taking place in 7 California. (See MCV 9:24–10:7); (Reply to MCV 8:16–9:5, ECF No. 83). Therefore, while 8 Plaintiff certainly has a localized interest, the Court finds that this factor alone, coupled with 9 Defendant’s local ties to the Northern District of California, does not create a strong enough 10 showing in favor of disregarding the forum selection clause. 11 Finally, the parties dispute the governing law that applies to this case. Plaintiff claims 12 that Nevada law prevails, after applying Nevada’s “substantial relationship” test for 13 determining which state’s law applies to the EVA. (Resp. to MCV 12:20–25 (citing Contreras 14 v. Am. Family Mut. Ins. Co., 135 F. Supp. 3d 1208, 1218 (D. Nev. 2015)).7 Conversely, 15 Defendants claim that California law applies because the choice of law clause in the MLA 16 designates California law as governing. (See MCV 10:9–16); (MLA ¶ 16.7, Ex. A to Hottinger 17 Decl.). Accordingly, a decision on the governing law is inextricably linked to the merits of this 18 case, specifically to a determination of whether the EVA is a separate contract or a 19 modification of the MLA.8 Therefore, because the governing law in this case is reasonably in 20 21 6 Defendant explains that as of March 31, 2020, the District of Nevada had 707 pending cases dispersed amongst seven judgeships. (MCV 9:9–21, ECF No. 62 (citing U.S. District Court–Judicial Caseload Profile, 22 https://www.uscourts.gov/sites/default/files/data_tables/fcms_na_distprofile0331.2020.pdf)). The Northern District of California had 722 pending cases, but dispersed amongst fourteen judgeships. (Id.). 23 7 The Court also notes that after a § 1404(a) transfer based on the MLA’s valid forum selection clause, 24 California’s choice-of-law rules will apply, which Plaintiff did not discuss. See Atl. Marine Const. Co., Inc., v. U.S. Dist. Ct. W.D. Tex., 571 U.S. 49, 64–65 (2013). 25 8 Further, the MLA requires that any modification be evidenced by a signed writing. (MLA ¶ 16.4, Ex. A to Hottinger Decl., ECF No. 45). If the Court determines that the EVA is a modification of the MLA, then 1 dispute, Plaintiff cannot establish the exceptional circumstances required to avoid the forum 2 selection clause. Thus, the Court grants Defendant’s Motion to Change Venue. 3 2. Convenience of the Parties and the Interests of Justice 4 Because the MLA’s forum selection clause applies to this dispute and necessitates 5 transfer, the Court need not address Defendant’s second argument: whether the Jones factors 6 favor transfer based on the convenience of the parties and the interests of justice. 7 IV. CONCLUSION 8 IT IS HEREBY ORDERED that Defendant’s Motion to Change Venue, (ECF No. 62), 9 is GRANTED. The Clerk of Court is directed to TRANSFER THIS CASE to the Northern 10 District of California, San Francisco Division under 28 U.S.C. § 1404(a) and close this case. 11 DATED this __2_8__ day of January, 2021. 12 13 14 15 ___________________________________ Gloria M. Navarro, District Judge 16 United States District Court 17 18 19 20 21 22 23 24

25 Defendant argues that the oral agreement claimed by Plaintiff is invalid because the MLA can only be modified by a signed writing. (See MTD 2:26–3:2, ECF No. 27).