Krupp International, Inc. v. Yarn Industries, Inc.

615 F. Supp. 1103, 1985 U.S. Dist. LEXIS 16828
CourtDistrict Court, D. Delaware
DecidedAugust 14, 1985
DocketCiv. A. 83-357 LON, 83-430 LON
StatusPublished
Cited by6 cases

This text of 615 F. Supp. 1103 (Krupp International, Inc. v. Yarn Industries, Inc.) is published on Counsel Stack Legal Research, covering District Court, D. Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Krupp International, Inc. v. Yarn Industries, Inc., 615 F. Supp. 1103, 1985 U.S. Dist. LEXIS 16828 (D. Del. 1985).

Opinion

OPINION

LONGOBARDI, District Judge.

The Plaintiff, Krupp International, Inc. (“Krupp”), brought this action to compel Yarn Industries, Inc. (“Yarn”) to pay certain amounts due under a contract for sale of a yarn manufacturing system. Yarn has denied liability and has counterclaimed against Krupp seeking compensation for losses incurred due to the failure of the yarn manufacturing equipment to operate properly. Krupp has impleaded Platt Saco Lowell Corporation (“Platt Saco”) as a third-party Defendant on the counterclaim. Currently before the Court is a motion by Platt Saco to dismiss Krupp’s claims against it or, alternatively, to transfer this action to the United States District Court for the District of South Carolina.

BACKGROUND

On August 16, 1978, Krupp and Yarn entered into a contract under which Krupp agreed to sell Yarn certain manufacturing equipment to be installed in a plant being erected by Yarn. Yarn paid Krupp 50% of the purchase price as a down payment. The agreement provided that Yarn would pay the balance by December 31, 1978, and that Krupp would deliver the equipment by the same date. Krupp and Yarn subsequently agreed to extend the time for delivery and final payment to March, 1979.

Under the contract, Krupp was obligated to install the yarn manufacturing equipment. In January, 1979, however, the assets of Krupp’s Textile Manufacturing Division (“TMD”) were sold to Hergeth, Inc., *1105 a predecessor of Platt Saco, 1 and virtually all of the division’s employees became Hergeth employees. As a result of the sale and transfer of employees, Hergeth undertook to install the equipment.

Installation was completed in December, 1979. Yarn was dissatisfied with the operation of the system and complained to Krupp. After efforts to resolve the complaints proved unavailing, Yarn notified Krupp on July 16,1981, that it revoked any acceptance of the system and demanded a refund of the purchase price. Krupp has refused to take back the system or refund the purchase price.

Although the dispute is based on a straightforward breach of contract claim, its procedural history is complex and has involved decisions by three federal district courts and two courts of appeals. In late October, 1981, Yarn notified Krupp that it intended to sue Krupp in South Carolina. At Krupp’s request, Yarn sent Krupp a copy of the complaint it intended to file. On November 13, 1981, Krupp filed suit against Yarn in the United States District Court for the Southern District of New York. Upon receiving notice of Krupp’s suit in New York, Yarn brought suit against Krupp in the United States District Court for the District of South Carolina.

The New York court dismissed Krupp’s action on the grounds that venue was improper in New York. This dismissal was affirmed by the Second Circuit. Krupp Intern., Inc. v. Yarn Industries, Inc., 714 F.2d 114 (2d Cir.1982). Subsequently, on June 10, 1983, Krupp filed this action in Delaware.

Krupp’s complaint contains three counts. The first count seeks additional payment allegedly due as the result of an oral modification of the yarn equipment contract. The second count seeks interest due as the result of a delay in payment by Yarn. The third count seeks a declaratory judgment that Krupp fully performed its agreement with Yarn.

Yarn moved this Court to transfer the Delaware action to South Carolina while Krupp moved the South Carolina court to dismiss that action. The district court in South Carolina ruled that Yarn was collaterally estopped from maintaining the South Carolina action by the decision of the New York court. The South Carolina court’s decision was based on a choice of forum clause contained in the contract between Krupp and Yarn. This clause provides that the forum for resolving disputes between the parties would be, at Krupp’s option, either Essen or Bremmen, or “the Court having jurisdiction for the domicile of [Krupp’s] agent or for the domicile of the purchaser.” The New York court interpreted “domicile” to mean the places of incorporation of Krupp and Yarn, which are Delaware and South Carolina respectively. The New York court accordingly held that venue was improper in New York. The South Carolina court interpreted the New York decision to mean that the New York court had upheld the validity and enforceability of the choice of forum clause which empowers Krupp to choose either Delaware or South Carolina at its sole option. The court held that Yarn was collaterally estopped from relitigating the validity of the clause or from disputing Krupp’s choice of forum in Delaware. The district court therefore dismissed the South Carolina action.

In ruling on Yarn’s motion to transfer this action from Delaware to South Carolina, Judge Stapleton agreed with the South Carolina district court that Yarn was collaterally estopped from relitigating the validity or enforceability of the choice of forum clause. Citing Plum Tree, Inc. v. Stockment, 488 F.2d 754 (3d Cir.1973), however, he held that the choice of forum clause was not, by itself, dispositive of Yarn’s motion to transfer. Rather, the choice of forum clause only eliminated Yarn’s convenience as a factor in ruling on the motion to transfer. If other factors, *1106 such as the convenience or availability of-third-party witnesses, weighed in favor of South Carolina, the action could still be transferred there. Judge Stapleton went on to hold that under the circumstances at that time, the considerations favoring South Carolina as a forum were not sufficient to justify transfer. He explicitly left open the possibility that changes in circumstances might justify transfer at a later date.

Subsequently, the Fourth Circuit reversed the South Carolina district court’s ruling on the collateral estoppel effect of the New York decision. Yarn Industries v. Krupp Intern., Inc., 736 F.2d 125 (4th Cir.1984). The Fourth Circuit held that the New York court did not have to rule on the validity of the choice of forum clause. Under the general venue statute, a diversity action may be brought only in the judicial district where all plaintiffs reside or all defendants reside or in the district in which the claim arose. The “residence” of a corporation for venue purposes is its state of incorporation. Thus, in the absence of the choice of forum clause, venue would only be proper in Delaware or South Carolina. The New York court then went on to construe the choice of forum clause to allow venue only in Delaware or South Carolina. The Fourth Circuit held that the New York court had no reason to consider the validity or enforceability of the choice of forum clause since, whether it was valid or not, venue was improper in New York. Thus Yarn was not collaterally estopped from litigating the validity of the choice of forum clause because that issue had not been decided by the New York court.

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615 F. Supp. 1103, 1985 U.S. Dist. LEXIS 16828, Counsel Stack Legal Research, https://law.counselstack.com/opinion/krupp-international-inc-v-yarn-industries-inc-ded-1985.