Venue-selection clauses: a trap for the unwary.

Author:Weinstein, David B.
Position:Cover story
 
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Including a "boilerplate" forum-selection clause in your client's contract could preclude resulting litigation from proceeding in a federal district court. Forum-selection clauses mandating venue in a particular county are commonplace, particularly in real estate and construction contracts. If, however, the mandated county lacks a physical "bricks-and-mortar" federal courthouse, such a clause might prevent a party from litigating in a federal forum. While the importance of well-drafted forum-selection clauses has been the subject of much discussion, (1) their potential to foreclose proper venue in federal court remains relatively unexplored. (2) A split of authority in the 11th Circuit confirms this danger for Florida practitioners. Fortunately, prudent drafting should prevent an ostensibly innocuous clause from precluding access to a federal district court.

The Problem

A mandatory forum-selection clause typically designates an exclusive venue or jurisdiction for litigation arising out of a contract. (3) Forum-selection clauses can be either geographical (mandating a particular location) or jurisdictional (mandating a particular court). (4) Based on this distinction, most courts agree that a clause mandating venue in a particular county--but not specifying a particular court --allows venue in any court that is located in that county. (5)

For example, in Global Satellite Communication Co. v. Starmill U.K., Ltd., 378 F.3d 1269 (11th Cir. 2004), the 11th Circuit, applying ordinary contract principles, construed a clause mandating venue "in Broward County, Florida," as allowing litigation in either the Broward County Circuit Court or the Ft. Lauderdale Division of the U.S. District Court for the Southern District of Florida. The contract language did not mandate a particular forum, but only a location (i.e., Broward County), where both courts were located. (6)

The 11th Circuit construed a similar clause, with a similar result, in City of West Palm Beach v. Visionair, Inc., 199 F. App'x 768 (11th Cir. 2006). (7) Visionair involved a forum-selection clause providing that all claims "shall be instituted and prosecuted in Palm Beach County, Florida." (8) Confusing Global Satellite's construction of a contractual provision mandating venue "in Broward County" (which Global Satellite held unambiguously permitted venue in any court located in that county) with its construction of a different provision of the same contract (which Global Satellite found to be both vague and ambiguous), the district court held that the Visionair clause was ambiguous and construed it against the drafter to preclude litigation in a federal court located in Palm Beach County. (9) The 11th Circuit reversed, discerning no ambiguity in the clause: "Under our decision in Global Satellite, which involved substantially similar language, the clause permits venue in either state or federal court, so long as that court is [located] in Palm Beach County." (10)

In short, it appears that in the 11th Circuit a forum-selection clause mandating venue in a county ordinarily will be satisfied by any court located there. Less clear is whether a clause mandating venue in a county that has no "bricks-and-mortar" federal courthouse effectively requires venue exclusively in that county's state courts. Should courts construe a geographical forum-selection clause mandating venue in a county with no federal courthouse as precluding suit in federal court? Alternatively, should courts interpret such clauses to avoid such an implied or de facto jurisdictional limitation? Although Global Satellite did not present this question, one might plausibly infer an answer from the opinion. The 11th Circuit's reasoning --that a clause mandating venue in Broward County permitted venue in any forum "located in" that county (11)--suggests that a clause mandating suit in a county without a physical federal courthouse would require litigation in that county's state court.

Decisions of other federal courts of appeals support this view. Yet two facts prevent certainty about whether the 11th Circuit will embrace it. First, in decisions after Global Satellite, several district courts in the 11th Circuit have construed clauses mandating venue in a county to permit venue in a federal district court that includes that county but sits elsewhere. Second, and more important, in recent unpublished decisions, the 11th Circuit has taken seemingly different positions on this issue.

The Split of Authority

Some district courts have found clauses mandating venue in a county with no federal courthouse (or providing that venue "shall be" such a county) as ambiguous and have construed them to allow venue in the federal district court that includes that county, even if that federal court is located elsewhere. (12) In 2009, a district court in the Fourth Circuit described this--questionably--as the majority view. (13)

Other district courts have construed clauses mandating venue in a county with no physical federal courthouse (or providing that venue "shall be" such a county) as limiting venue to the state court located there. (14) In 2006, a district court in the 11th Circuit described this as the majority view. (15)

Several federal courts of appeals have adopted this view. In Yakin v. Tyler Hill Corp., 566 F.3d 72 (2d Cir. 2009), the plaintiff alleged she was injured while attending the defendant's summer camp. To attend, she was required to submit an application containing a forum-selection clause providing that "venue ... shall be in Nassau County, New York." (16) On the date of the application, there was a federal courthouse in Nassau County. (17) By the time of the lawsuit, however, the courthouse had been relocated to Suffolk County. (18) The Second Circuit determined that this move did not affect the meaning of the clause, which was unambiguously geographical:

A reasonable person reviewing the statement, "It is agreed that the venue and place of trial of any dispute that may arise out of this Agreement ... shall be in Nassau County, New York," would necessarily conclude that the parties intended that litigation take place in an appropriate venue in Nassau County and that this commitment was not conditioned on the existence of a federal courthouse in that county. (19)

Accordingly, the Second Circuit affirmed the district court's order remanding the case to Nassau County state court. (20) "Had there been a federal court located in Nassau County at the time of this litigation, remand would have been improper. But there was none." (21)

The Third and Fifth circuits have reached similar results in unpublished decisions. Wall St. Aubrey Golf, LLC v. Aubrey, 189 F. App'x 82 (3d Cir. 2006), involved a contract laying venue "in Butler County, Pennsylvania."...

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