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Gemini Technologies, Inc. v. Smith & Wesson, Corp.

United States District Court, D. Idaho

May 16, 2018

GEMINI TECHNOLOGIES, INC., an Idaho corporation, Plaintiff,
SMITH & WESSON, CORP., an Delaware Corporation; and AMERICAN OUTDOOR BRANDS CORPORATION, a Massachusetts corporation, Defendants.


          Honorable Candy W. Dale, United States Magistrate Judge.


         Before the Court is the Defendants' motion to dismiss the complaint on the grounds of Forum Non Conveniens, which doctrine was recognized by the United States Supreme Court in Atlantic Marine Const. Co., Inc. v. U.S. Dist. Court for the W.D. of Tx., 571 U.S. 49 (2013), for the enforcement of a forum-selection clause pointing to a state or foreign forum. (Dkt. 7.) Having fully reviewed the record herein, the Court finds that the facts and legal arguments are adequately presented in the briefs and record. Accordingly, in the interest of avoiding delay, and because the Court conclusively finds that the decisional process would not be significantly aided by oral argument, the motion will be decided on the record before this Court without oral argument. Dist. Idaho L. Rule 7.1(d).[1] Defendants contend the Court[2] should dismiss Plaintiff's complaint based on the forum selection clause in the parties' agreement. As explained below, the Court will grant the motion.


         Plaintiff Gemini Technologies, Inc. (“Gemtech”) is an Idaho corporation that rose from modest beginnings in the late 1960s to an industry leader in the design and manufacture of gun silencers. Smith & Wesson is a Delaware corporation that manufactures firearms.[4] The Court has jurisdiction over the dispute under 28 U.S.C. § 1332, as the amount in controversy exceeds $75, 000.00, and the entities herein are citizens of different states.

         On March 9, 2017, Smith & Wesson provided a term sheet and exclusivity agreement to Gemtech for the purchase of Gemtech's products. Later, after reviewing Gemtech's financials, operations, and sales, Smith & Wesson offered to purchase all of Gemtech's assets. Gemtech accepted, and on June 29, 2017, the parties signed an Asset Purchase Agreement (the “APA”). The parties closed the asset purchase sale on August 7, 2017. Compl. Ex. A. (Dkt. 1.)

         According to the terms of the APA, Smith & Wesson promised to make two different kinds of payments to Gemtech: (1) a cash payment; and (2) an earn-out payment. Also a part of the APA was a separate escrow agreement. As part of the APA, the parties agreed that some of the funds would be held in escrow until the earn-out payment was due and payable. Smith & Wesson hired Ron Martinez and Jason Pace, the majority owner and the representative in charge of Gemtech's international sales, respectively, as employees. Smith & Wesson separately entered into an employment agreement with Ron Martinez. Decl. of Martinez ¶ 7. (Dkt. 10-1 at 2.)

         The Complaint alleges Smith & Wesson breached the terms of the APA and the Escrow Agreement. Specifically, Gemtech alleges that Smith & Wesson interfered with Gemtech's ability to receive earn-out payments, and that Smith & Wesson “made improper indemnity claims” under the Escrow Agreement and thus harmed Gemtech. In its third cause of action, Gemtech alleges that “[t]he APA contains both express and implied covenants of good faith and fair dealing” and that Smith & Wesson breached those covenants. Finally, Gemtech brings a claim for declaratory judgment, requesting that the Court “broadly construe the term ‘negatively impact' in Section 1.6(c) of the APA to include any decision by Smith & Wesson which reduces, neglects, hinders, or otherwise affects the company's earn-out period sales, which sales affect the earn-out payment.” Gemtech requests also that the Court “broadly construe the term ‘consult' in Section 1.6(c) of the APA.”

         The APA contains the following choice of law provision:

9.5 Governing Law; Waiver of Jury Trial. The provisions of this Agreement and the documents delivered pursuant hereto shall be governed by and construed in accordance with the laws of the state of Delaware (excluding any conflict of law rule or principle that would refer to the laws of another jurisdiction). Each party hereto irrevocably submits to the jurisdiction of the Circuit Court of the state of Delaware, in any action or proceeding arising out of or relating to this Agreement or any of the Collateral Agreements, and each party hereby irrevocably agrees that all claims in respect of any such action or proceeding must be brought and/or defended in such court; provided, however, that matters which are under the exclusive jurisdiction of the federal courts shall be brought in the Federal District Court for the District of Delaware….

         Section 10.6 of the APA defines “Collateral Agreements” as “any or all of the exhibits to this Agreement and any and all other agreements, instruments, or documents required or expressly provided under this Agreement to be executed and delivered in connection with the transactions contemplated by this Agreement.” The Escrow Agreement is listed as Exhibit A on page “v” of the APA.

         The Escrow Agreement also contains a choice of law provision:

20. Governing Law. This Escrow Agreement shall be construed and interpreted in accordance with the internal laws of the state of Delaware without giving effect to the conflict of laws principles thereof.

         Gemtech filed its complaint on January 24, 2018, alleging venue was proper in the District of Idaho pursuant to 28 U.S.C. § 1391.[5] Gemtech argues the forum selection clause in the APA is not enforceable under Idaho law, and the District of Idaho is the primary judicial district in which the asset purchase occurred, rendering venue proper. Smith & Wesson contends that the choice of law provision in the APA requires suit to be filed in the state circuit court in Delaware. Consequently, Smith & Wesson asserts this action must be dismissed, because a United States district court in Delaware would not have diversity jurisdiction. The parties' arguments focus on the application of the Supreme Court's 2013 decision, Atlantic Marine Construction Co., Inc. v. U.S. Dist. Court for the W.D. of Tx., 571 U.S. 49 (2013).


         1. Atlantic Marine

         The United States Supreme Court in Atlantic Marine held that “a valid forum selection clause [should be] given controlling weight in all but the most exceptional circumstances.” Atlantic Marine, 571 U.S. at 63; see also Wada Farms, Inc. v. Jules & Assoc., Inc., No. 4:14-cv-00324-BLW, 2015 WL 128100, at *1 (D. Idaho Jan. 7, 2015). “When the parties have agreed to a valid forum selection clause, a district court should ordinarily transfer the case to the forum specified in that clause.” Id. The Supreme Court's analysis presupposes a contractually valid forum-selection clause. Id. at 62 n.5. The Supreme Court explained that the “enforcement of valid forum-selection clauses, bargained for by the parties, protects their legitimate expectations and furthers vital interests of the justice system.” Id. at 63.

         In Atlantic Marine, the Supreme Court determined that a forum selection clause designating a district other than the district of filing as the contractually agreed upon forum may be enforced by a motion to transfer pursuant to 28 U.S.C. § 1404(a).[6] Id. at 52. “Only under extraordinary circumstances unrelated to the convenience of the parties should a [Section] 1404(a) motion be denied.” Id. at 62.

         Typically, a district court considering a Section 1404(a) motion “evaluate[s] both the convenience of the parties and various public-interest considerations” and “weigh[s] the relevant factors and decide[s] whether, on balance, a transfer would serve 'the convenience of parties and witnesses' and otherwise promote 'the interest of justice.” Id.; 28 U.S.C. ยง 1404(a). However, the presence of a forum selection ...

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