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In re Diaz Contracting Inc.

filed as amended may 12 1987.: April 30, 1987.

IN RE DIAZ CONTRACTING, INC., A NEW JERSEY CORPORATION (DEBTOR); DIAZ CONTRACTING, INC., A NEW JERSEY CORPORATION,
v.
NANCO CONTRACTING CORP., A NEW YORK CORPORATION; QUICKWAY, INC., A PENNSYLVANIA CORPORATION; NANCO CONTRACTING CORP., APPELLANT



On Appeal from the United States District Court for the District of New Jersey-Camden, D.C. Civil Action No. 85-5139.

Higginbotham and Becker, Circuit Judges, and Dumbauld, District Judge.*fn*

Author: Higginbotham

Opinion OF THE COURT

A. LEON HIGGINBOTHAM, JR., Circuit Judge.

This action began as an adversary proceeding before the United States Bankruptcy Court for the District of New Jersey (Camden Division) to recover monies owed. Defendant-appellant Nanco Contracting Corporation ("Nanco") appeals from the order of the district court affirming the prior order of the bankruptcy court that, in pertinent part, denied Nanco's motion to dismiss the complaint of plaintiff-appellee Diaz Contracting, Incorporated ("Diaz"). We must determine whether the district and bankruptcy courts erred in refusing to enforce a forum selection clause in the parties' contract requiring that all actions arising under the contract be brought in the courts of the State of New York. For the reasons set forth below, we will reverse the judgment of the district court.

I.

"Orders denying a pretrial motion to enforce a forum selection clause are reviewable by courts of appeals on three grounds: as interlocutory decisions under 28 U.S.C. § 1291(a)(2) (1982), as collaterally final orders under 28 U.S.C. § 1291, and under the All Writs Act, 28 U.S.C. § 1651 (1982)." General Eng'g Corp. v. Martin Marietta Alumina, Inc., 783 F.2d 352, 355-56 (3d Cir. 1986) (citing Coastal Steel Corp. v. Tilghman Wheelabrator, Ltd., 709 F.2d 190, 193-97 (3d Cir.), cert. denied, 464 U.S. 938, 78 L. Ed. 2d 315, 104 S. Ct. 349 (1983)). Accordingly, we may properly exercise appellate jurisdiction over the order of the district court upholding the non-enforcement in the bankruptcy court of the contractual forum selection clause between Nanco and Diaz.

This appeal arises out of an adversary proceeding instituted by Diaz in connection with its petition under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 541 & 542 (1982), against Nanco. In that proceeding, Diaz moved to recover, as property of the debtor's estate, certain monies allegedly owed to it by Nanco.*fn1 Nanco filed a cross-motion for an order dismissing the proceeding on the basis of the forum selection clause in the parties' subcontract that requires actions arising thereunder to be brought in the courts of the State of New York. Nanco relied upon this Court's opinion in Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190 (3d Cir.), cert. denied, 464 U.S. 938, 78 L. Ed. 2d 315, 104 S. Ct. 349 (1983), wherein now Chief Judge Gibbons noted the rule, first articulated by the Supreme Court in The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 32 L. Ed. 2d 513, 92 S. Ct. 1907 (1972), "that a forum selection clause is presumptively valid." 709 F.2d at 202. Acknowledging the applicability of Coastal Steel and The Bremen, the bankruptcy court nevertheless apparently concluded that Diaz had overcome the presumption of enforceability by demonstrating financial difficulty. See Appendix ("App.") at A37-38. Specifically, the bankruptcy court stated:

As I read the Coastal Steel case, I believe it does leave the Court with a certain degree of discretion and certainly allows them to take into account certain mitigating or equitable factors.

I am familiar with the financial difficulty of this particular Chapter 11 debtor. Mr. Diaz, both by way of his corporate filing and by several other related filings, is before this Court and has experienced great difficulties so far as cash flow of the estate is concerned and I think I am bound to take that into consideration.

App. at A37-38. The bankruptcy judge, accordingly, refused to direct the parties' dispute to the courts of New York.

Nanco subsequently moved before the United States District Court for the District of New Jersey for leave to appeal the bankruptcy court's denial of its motion to dismiss. The district court granted Nanco's motion for leave to appeal. The order of the bankruptcy court was subsequently affirmed by the district court which noted that it "[could] not find on the record before it that [the bankruptcy court] abused [its] discretion and thus would not second-guess [that] decision." App. at A63.

On appeal, Nanco argues that the district court erroneously applied an abuse of discretion standard of review to the bankruptcy court's determination that the forum selection clause need not be enforced, and that both courts erred as a matter of law in refusing to enforce the clause. Diaz responds that this Court's decision in Zimmerman v. Continental Airlines, Inc., 712 F.2d 55 (3d Cir. 1983), cert. denied, 464 U.S. 1038, 79 L. Ed. 2d 165, 104 S. Ct. 699 (1984), modified our prior holding in Coastal Steel and renders forum selection clauses non-binding on bankruptcy courts. Based on Zimmerman, Diaz maintains that the purposes underlying the broad jurisdiction of the bankruptcy courts require that their decisions to enforce forum selection clauses be discretionary. Thus, Diaz argues, the district court properly reviewed the bankruptcy court's determination that the forum selection clause not be enforced for an abuse of discretion. Finally, Diaz argues that under whatever standard the ...


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