R.J. Corman Railroad company/carolina Lines, LLC v. Global Bio Resources, Inc. ( 2020 )

RENDERED: DECEMBER 23, 2020; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2018-CA-1870-MR
R.J. CORMAN RAILROAD
COMPANY/CAROLINA
LINES, LLC APPELLANT
APPEAL FROM JESSAMINE CIRCUIT COURT
v. HONORABLE HUNTER DAUGHERTY, JUDGE
ACTION NO. 18-CI-00532
GLOBAL BIO RESOURCES, INC. APPELLEE
OPINION
VACATING AND REMANDING
** ** ** ** **
BEFORE: DIXON, GOODWINE, AND TAYLOR, JUDGES.
TAYLOR, JUDGE: R.J. Corman Railroad Company/Carolina Lines, LLC (R.J.
Corman) brings this appeal from a November 28, 2018, Order of the Jessamine
Circuit Court dismissing its complaint and petition for declaratory judgment. We
vacate and remand.
R.J. Corman is a limited liability company incorporated in South
Carolina, and Global Bio Resources, Inc. (Global Bio) is a corporation
incorporated in Wyoming.1 R.J. Corman owned real property located in
Whiteville, North Carolina, and Global Bio sought to purchase said real property
from R.J. Corman. In furtherance thereof, the parties executed a letter of intent
(LOI) on May 14, 2018. Therein, R.J. Corman agreed to sell and Global Bio
agreed to purchase the real property for $2,146,196.62 provided the terms of the
LOI were satisfied. Relevant to this appeal, paragraph 6 of the LOI required
Global Bio to obtain financing for the purchase price, with proof thereof to be in a
form reasonably acceptable to R.J. Corman. Per the LOI, the failure of Global Bio
to obtain a reasonably acceptable form of financing gave R.J. Corman the right to
terminate the LOI.
Global Bio tendered proof of financing to R.J. Corman. However,
R.J. Corman viewed the financing obtained by Global Bio as not reasonably
acceptable, and by email dated June 14, 2018, R.J. Corman gave Global Bio notice
of termination of the LOI.
Nevertheless, the parties continued negotiations and eventually
executed a Mutual Non-Disclosure and Non-Solicitation Agreement (Agreement)
on July 12, 2018. One purpose for the Agreement was to set forth the conditions
1
R.J. Corman’s parent company is a Kentucky Limited Liability Company located in
Nicholasville, Kentucky.
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by which the parties would exchange confidential information concerning the
possible sale of the real property. Also, the Agreement was more limited than the
LOI and did not bind the parties to sell or to purchase the subject real property.
Rather, the Agreement was merely executed “in connection with the evaluation of
one or more possible business transactions including the sale and purchase” of the
subject real property. Ultimately, by email dated August 20, 2018, R.J. Corman
terminated the Agreement, as permitted thereunder, upon thirty days written notice.
By letter dated September 7, 2018, Global Bio informed R.J. Corman that R.J.
Corman had breached the LOI and that such breach caused damages to Global Bio.
Three days later, on September 10, 2018, R.J. Corman filed a
complaint and petition for declaratory judgment against Global Bio in the
Jessamine Circuit Court. Therein, R.J. Corman sought a declaratory judgment that
it possessed no contractual obligation to sell the real property to Global Bio. R.J.
Corman asserted that it properly terminated negotiations with Global Bio pursuant
to the Agreement. R.J. Corman also stated that its principal office was located in
Nicholasville, Kentucky.
On November 16, 2018, Global Bio filed a motion to dismiss. Global
Bio sought dismissal based upon lack of personal jurisdiction, improper venue, and
failure to state a claim upon which relief could be granted. As to the improper
venue argument, Global Bio particularly reasoned:
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The language set forth in Paragraph 15 of the LOI was
expressly negotiated by the parties and was included in
the final version of that agreement as executed by the
parties. That the parties would require any disputes
about the sale of the Property (located in North Carolina)
to be brought in a North Carolina court is both reasonable
and to be expected. A party should not be permitted to
avoid its plain contractual obligations simply by later
cleverly omitting reference to them in filings with the
Court. The Court should not condone this type of artful
pleading and should instead dismiss this action so that it
may be pursued in the forum contractually agreed upon
by the parties.
November 16, 2018, Motion to Dismiss at 15. According to Global Bio, R.J.
Corman’s contractual obligation to sell the real property arose under the LOI, and
R.J. Corman breached the LOI by refusing to accept Global Bio’s proof of
financing. As such, Global Bio believed the LOI’s forum selection provision
controlled; thus, the action must be filed in North Carolina.
By Order entered November 28, 2018, the circuit court dismissed R.J.
Corman’s complaint and petition for declaratory judgment. The court specifically
concluded that the “forum selection clause in the parties’ LOI survived any
subsequent agreement and the proper venue for the present dispute between the
parties is the State Courts of North Carolina.” This appeal follows.
To begin, the circuit court rendered its order dismissing R.J. Corman’s
petition under Kentucky Rules of Civil Procedure (CR) 12.02. However, it is clear
that matters outside of the pleadings were presented to and not excluded by the
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circuit court in reaching its decision. As a consequence, we are bound to consider
the order as a summary judgment. CR 12.03; Collins v. KCEOC Cmty. Action
P’ship, Inc., 455 S.W.3d 421, 423 (Ky. App. 2015). Summary judgment is proper
where there exists no material issue of fact and movant is entitled to judgment as a
matter of law. Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476
(Ky. 1991). Our review proceeds accordingly.
R.J. Corman contends the circuit court erred by concluding that
Kentucky was not the proper forum to adjudicate its petition for declaration of
rights. In particular, R.J. Corman argues that the circuit court improperly relied
upon the forum selection clause set forth in the LOI. R.J. Corman argues that the
LOI was merged into the Agreement by a merger clause contained in the latter. As
a result, R.J. Corman maintains that the LOI was extinguished by the merger
clause, including the LOI’s forum selection clause, and the circuit court erred by
concluding otherwise.
It is generally stated that merger “refers to the extinguishment of one
contract by its absorption into another contract.” 17A C.J.S. Contracts § 580
(2020); Energy Home, Div. of S. Energy Homes, Inc. v. Peay, 406 S.W.3d 828, 834
(Ky. 2013). Merger may be effectuated by a merger clause in a new contract
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whereby all prior statements or prior contractual agreements are extinguished by
execution of the new contract.2
In the Agreement, a merger clause was set forth in Section 13:
This Agreement constitutes the entire agreement of the
Parties with respect to the subject matter hereof and
supersedes any and all existing or prior agreements and
communications, whether written or oral, relating to the
subject matter hereof. . . .
Agreement at 4. The above merger clause is unambiguous. It clearly provides that
existing or prior agreements are superseded or extinguished, and the terms of the
Agreement constitute “the entire Agreement.” Agreement at 4. However, we do
not believe the merger clause in the Agreement operated to extinguish the LOI.
It is uncontroverted that R.J. Corman expressly terminated the LOI by
email dated June 14, 2018. In the email, R.J. Corman stated that it was terminating
the LOI pursuant to Section 5 and based upon Global Bio’s failure to obtain
reasonably acceptable financing to purchase the real property.3
2
To be effective, a merger of a prior contract into a new contract generally can only occur
between the same parties and upon the same subject matter.
3
The Letter of Intent provided, in relevant part:
5. Seller may terminate this Letter if the Purchaser shall fail to
obtain proof of financing in the manner and by the date prescribed
in Paragraph 6 hereof. . . .
6. The consummation of the Transaction by Purchaser will be
subject to (i) Purchaser’s ability to obtain financing for the
Purchase Price of the Property, which proof of financing (e.g., a
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The legal effect of a party terminating a contract is to dissolve the contract:
When a contract is terminated, even wrongfully, there is
no longer a contract, and therefore no duty to perform
and no right to demand performance, unless specific
performance is sought. The parties to an agreement are
relieved of their mutual obligations upon termination of
the agreement, and neither party is liable after
termination for further transactions thereunder.
However, the exercise of a reserved power of termination
will usually have prospective operation only, and it will
discharge both parties from their contractual duty to
perform promises that are still wholly executory, but will
not discharge the duty to make reparation for breaches
that have already occurred. Thus, obligations that have
already accrued ordinarily are not affected, and there is
no forfeiture of any right to recover damages for a prior
breach of the contract by the other party.
17B C.J.S. Contracts § 616 (2020) (footnotes omitted).
As R.J. Corman terminated the LOI, the Agreement’s merger clause
did not merge the LOI as the LOI was dissolved prior thereto and did not exist at
that time. Simply stated, no contractual obligations under the LOI existed at the
time of execution of the Agreement because the LOI was terminated before the
Agreement’s execution. Nonetheless, Global Bio may, of course, bring an action
for breach of the LOI based upon the alleged wrongful rejection of Global Bio’s
proof of financing.
loan commitment or pre-approval letter), in a form deemed
reasonably acceptable by Seller[.] . . .
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In its petition for declaratory judgment, R.J. Corman sought a
declaration that it owed no contractual duty to sell the real property to Global Bio.
The parties agree that no such contractual duty existed in the Agreement. If a
contractual duty existed, it must be found in the LOI that Global Bio believes was
wrongfully terminated by R.J. Corman. The LOI contained the following forum
selection clause:
15. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this
Letter may only be brought against any of the Parties in
the courts of the State of North Carolina[.] . . .
LOI at 6. The above forum selection clause is clear and unambiguous. Under this
clause, the parties agreed that an action relating to rights under the LOI would be
brought in North Carolina.4 Consequently, we agree with the circuit court that the
forum selection clause in the LOI “survived any subsequent agreement.” Order at
1.
However, the court’s review of the enforceability of the forum
selection clause does not end there. R.J. Corman argues on appeal that the forum
selection clause in the LOI is unreasonable and, thus, unenforceable. R.J. Corman
maintains that the circuit court committed error by failing to conduct an
4
It appears that R.J. Corman Railroad Company/Carolina Lines, LLC, has also filed a similar
action in North Carolina alleging it owed no contractual duty to sell the real property to Global
Bio Resources, Inc., and Global Bio also has filed an action in North Carolina asserting breach of
contract against R.J. Corman.
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evidentiary hearing upon the issue of whether the forum selection clause in the LOI
was reasonable.5
As to the enforceability of a forum selection clause, our courts have
adopted Section 80 of the Restatement (Second) of Conflicts of Laws (1971), which
provides:
The parties’ agreement as to the place of the action
cannot oust a state of judicial jurisdiction, but such an
agreement will be given effect unless it is unfair or
unreasonable.
Prudential Res. Corp. v. Plunkett, 583 S.W.2d 97, 99 (Ky. App. 1979). So, a
forum selection clause in a contract is enforceable unless the clause is
unreasonable. Id. Several factors are considered in determining the
reasonableness of a forum selection clause, including disparity of bargaining
power, inconvenience of holding trial in the specified forum, law governing
formation of contract, place of execution of contract, and the location of parties
and witnesses. Aries Entm’t, LLC v. Puerto Rican Ass’n for Hispanic Affairs, Inc.,
5
Global Bio argues that this issue was not properly preserved nor argued before the circuit court
below. Global Bio also makes this argument in a motion to strike R.J. Corman’s brief, which has
been denied by separate order. Based upon our review of the record and the transcript of the
hearing conducted on November 20, 2018, issues regarding venue and the convenience of the
forum were specifically discussed and argued below. However, the court’s order does not
address the enforceability of the forum selection clause. Thus, the issue on appeal looks to the
application of the proper legal authority regarding the enforcement of a forum selection clause.
Applicable legal authority can be resorted to at any stage of a legal proceeding, regardless of
whether cited by the litigants. Burton v. Foster Wheeler Corp., 72 S.W.3d 925, 930 (Ky. 2002).
Likewise, as long as an appellate court confines its review to the record on appeal, no rule of
court or constitutional provision prevents the court from deciding an issue not presented on
appeal by the parties. Priestly v. Priestly, 949 S.W.2d 594, 596 (Ky. 1997). See also Cmty. Fin.
Servs. Bank v. Stamper, 586 S.W.3d 737, 740-41 (Ky. 2019).
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591 S.W.3d 850, 856 (Ky. App. 2019); Prezocki v. Bullock Garages, Inc., 938
S.W.2d 888, 889 (Ky. 1997). And, the circuit court is required to have a sufficient
factual record upon which to base its findings of fact as to the reasonableness of
the forum selection clause. Prezocki, 938 S.W.2d at 889.
In its order dismissing R.J. Corman’s petition for declaration of rights,
the circuit court merely concluded that the forum selection clause in the LOI
“survived any subsequent agreement” and that North Carolina was the proper
forum. The circuit court did not address whether the forum selection clause in the
LOI was reasonable. Moreover, the record on appeal in this case is limited and
does not provide a sufficient basis for findings of fact as to the reasonableness of
the forum selection clause. See Prezocki, 938 S.W.2d at 889.
Although R.J. Corman possesses the burden of demonstrating the
unreasonableness of the forum selection clause, the circuit court is, nevertheless,
obligated to follow precedent and to specifically determine the reasonableness of
the forum selection clause. Therefore, we vacate the circuit court’s order wherein
it concluded that the proper forum for the current action was North Carolina. Upon
remand, the circuit court shall conduct an evidentiary hearing to determine whether
R.J. Corman can demonstrate that the forum selection clause in the LOI is
unreasonable and thus should not be enforced. As noted, R.J. Corman carries the
burden of proving same. After the hearing, the circuit court shall render an order
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that includes separate findings of fact and conclusions of law in accordance with
CR 52.01.
We view any remaining contentions of error to be moot or without
merit.
For the foregoing reasons, the Order of the Jessamine Circuit Court
dismissing this action is vacated and remanded for proceedings consistent with this
Opinion.
ALL CONCUR.
BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE:
David R. Irvin Richard A. Getty
Catherine S. Wright Matthew W. English
Nicholasville, Kentucky Lexington, Kentucky
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