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September 23, 1985


The opinion of the court was delivered by: Moran, District Judge.


This case involves a contract dispute between Karlberg European Tanspa, Inc. (KETS), an American company in the business of selling tanning salon franchises and equipment, and JK-Josef Kratz Vertriebsgesellschaft mbH (JK), a German company which manufactures and sold KETS sun-tanning equipment. JK has moved to dismiss the action for improper venue under Rule 12(b)(3) of the Federal Rules of Civil Procedure.*fn1 For the following reasons, the court grants defendant's motion.


The relationship between KETS and JK started in 1982, when JK approached Ann and Stig Karlberg, sole owners of KETS, to establish an American distributorship of its products. After several negotiating sessions in the States, JK went back to Germany and drafted a contract. The contract, in German, was signed by the Karlbergs on November 8, 1982, even though neither Ann nor Stig Karlberg reads nor understands German. The contract was later translated into English by the Karlbergs. The 1982 contract contained a forum selection clause and an applicable law clause which the Karlbergs now claim JK included in the contract without their knowledge.

In 1983, before the 1982 distributorship agreement ended, JK again contacted the Karlbergs to negotiate another agreement. Ann Karlberg met with JK officers Udo Sommerkamp and Walter Kratz in Germany in September 1983. They discussed trouble KETS had encountered with the Federal Drug Administration concerning safety requirements for the sun-tanning beds, quotas and sales forecasts for the upcoming year. JK's lawyers drafted a new agreement which Mr. Sommerkamp and Mr. Katz brought to the States in October 1983. After further negotiation, during which Ann Karlberg made requests for specific changes in the draft contract, the Germans returned to Germany and wrote the final draft. On November 19, 1983, Ann Karlberg signed this agreement which was in German, and on November 24, 1983, she signed an English version.

The current dispute is based on the 1983 distributorship agreement. The contract basically gives KETS exclusive distributorship in the United States of JK's Soltron products and a discount on any such products, in return for which KETS promised not to distribute any other manufacturer's sun-tanning products or sell other products to its franchisees. Numerous provisions cover responsibility for advertising, meeting safety regulations, and making repairs on the equipment, as well as terms of supply and inventory. While the core of the contract dispute is how these provisions were implemented over the course of the contract, they are irrelevant to the current motion.

Central to the current motion are the third and second-to-last provisions of the 1983 agreement, which state:

Applicable Law

  The laws of the Federal Republic of Germany are to be
  applied in interpretations of this contract. The
  German text is binding.

Court of Venue

  The courts exercising jurisdiction over the district
  in which JK is headquartered are responsible for
  hearing litigation in any and all disputes which may
  arise from this contract or the individual delivery

JK argues that these provisions clearly establish that the current contract dispute should be heard in West Germany. KETS argues that venue is proper in Illinois because the forum selection clause is ambiguous and that, even if it is read to name West Germany as the forum, its inclusion in the contract was the result of unequal bargaining power and its implementation would be grossly unreasonable given the circumstances of the two companies.


Before turning to the validity of the forum selection clause we address the issue of its interpretation. KETS argues that the clause is ambiguous because a person (specifically an unsophisticated business person, which Ann Karlberg claims to be) could interpret the phrase, "the district in which JK is headquartered," as meaning either JK's American or German offices. To show that JK had offices or headquarters in the United States, KETS submitted incorporation documents for JK subsidiary corporations, filed in Arizona. These documents fail to convince the court that the contract called for venue in the United States. First, the phrase, "JK is headquartered," plainly refers to JK-Joseph Kratz Vertriebsgesellschaft mbH, the party to the contract and the present defendant, not to JK International, Inc. or any other subsidiary corporation. Second, JK is an international corporation with headquarters in West Germany. Third, West German law controls. Finally, Arizona revoked JK International, Inc. and J.K. of Arizona, Inc.'s corporate status on September 18, 1983, for failure to file an annual report, and no evidence ...

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