Private Equity

When a Florida-based coffee company decided to retain the services of a Georgia-based marketing company respecting the marketing and sale of the coffee company’s products in the southern part of the United States, a contract was prepared by the marketing company.  In preparing the contract, the contract draftsperson apparently “cut and pasted” a forum selection clause from another unrelated contract into the draft contract.  The contract was thereafter signed with neither side apparently paying much attention to the forum contractually selected by the “cut and pasted” clause.  That clause provided that “venue with respect to any action pertaining to this agreement shall be the State of Illinois.”  Illinois, of course, had absolutely no connection to either party or the subject matter of the contract.  When the marketing company sued the coffee company for unpaid commissions in Miami-Dade County, Florida, where the coffee company’s headquarters were located, the coffee company moved to dismiss the case on the basis of the mandatory choice of Illinois as the forum for any action to enforce the contract.  And in Espresso Disposition Corp. v. Santana Sales & Marketing Group, Inc.,^[1] “the Florida appellate court said that mandatory forum selection clauses mean what they say, even when what they say was the result of a supposed cut and paste error.”^[2]  Accordingly, the case was dismissed for being filed in an improper forum.

The fact that the court enforced the contract as written (including the cut and pasted forum selection clause) should not come as a surprise to any private equity deal professionals or their counsel.  That is the way written agreements work.^[3]  Indeed, even a forum selection clause incorporated by reference into your contract from another agreement, using the funny sounding phrase, “mutatis mutandis,” will be enforced as so incorporated.^[4]  But the potential issues that can arise from a forum selection clause, however it gets into your contract, are not limited to determining the geographic location in which your dispute must be litigated.

Suppose that the parties had deliberately determined to make Illinois a proper venue to resolve any disputes arising between the parties.  Does the clause at issue in Espresso Disposition Corp. actually mandate that the parties must bring all their disputes in Illinois or just those that actually arise from the contract; in other words, would a non-contractual claim such as negligent misrepresentation or fraud that was related to the contract be covered by the Illinois venue choice?  Are such non-contractual claims “an action pertaining to this agreement?”  Maybe, maybe not.  And regardless of the nature of the cause of action, does mandating that “venue …shall be shall be the State of Illinois” limit the courts in which a case may be filed in the State of Illinois to just the state courts of Illinois?  Again maybe, maybe not.

A recent decision of the United States Court of Appeals for Fourth Circuit,  Bartles v. Saber Healthcare Group, LLC, Nos. 16-2247, 16-2416 (4th Cir. Jan. 23, 2018), suggests that because there are several federal courts located across the State of Illinois, a suit filed in any one of those federal courts would be perfectly consistent with the particular forum selection clause at issue in Espresso Disposition Corp.  By mandating that “venue … shall be the State of Illinois,” the parties were dictating the geographic area within which a suit must be filed, but not necessarily limiting suit to only the state courts of Illinois.  But alas, the forum selection clause at issue in the Bartles case declared that “the county in which the Facility is located shall be the sole and exclusive venue for any dispute between the parties.”  Because there was not a federal court “physically located in that county,” the Fourth Circuit ruled that the state court located in the contractually selected county was the only permissible forum for the parties dispute, even though there was a federal court located in a different county, “with jurisdiction over the [contractually selected] county.”

Forum selection clauses, like other so-called boilerplate provisions, can have surprising and meaningful consequences despite the tendency of some to treat boilerplate as unimportant.  And the courts are not always consistent in the way they interpret some of the more standardized forum selection provisions at issue in cases such as Bartles and Espresso Disposition Corp.  Understanding the sometimes “idiosyncratic”  approaches that some courts have taken to interpreting these clauses is the subject of a recent, and as yet unpublished, UNC Legal Studies Research Paper by Professor John Coyle, entitled “Interpreting Forum Selection Clauses,” available via SSRN.^[5]  While it is rare for a practitioner to be recommending an article written by an academic, Professor Coyle’s paper is chock-full of useful information for the practicing transactional lawyer.

Professor’s Coyle’s most recent paper follows an equally valuable contribution he made to transactional deal lawyers in his law review article respecting choice of law clauses,^[6] which this author trumpeted in a prior blog post concerning the need to draft choice of law clauses to choose “all” of the law of the selected jurisdiction.^[7]  Forum selection clauses, like choice of law clauses, need to be specifically modified to address “all” of the issues that have given rise to the “idiosyncratic” rules of interpretation adopted by the courts to deal with standardized clauses where little thought was given to those unaddressed issues.  So, while it is important to understand the various words that have been given meaning by courts to address unaddressed issues in both choice of law and forum selection clauses, the better approach is to specifically address those issue with a bespoke clause.

The suggestions made and the sample clause provided by this author in the prior blog post respecting the need to select “all” of the law of the chosen jurisdiction^[8] apply equally to the choice of forum clause.  Simply designating a geographic location, without addressing whether both federal and state courts are permissible venues within the designated geographic location, and without clearly designating the type of disputes that are governed by that forum selection, can result in needless and expensive wrangling in a court about which court is going to determine the actual outcome of the dispute, rather than dealing directly with the dispute in the court you selected.

The good news for the careful transactional lawyer who drafts a bespoke clause is that courts will generally enforce a forum selection clause as written.  The bad news for those who fail to draft a bespoke clause is that the courts will enforce a boilerplate clause as written too, but in doing so may apply some idiosyncratic rules of interpretation that may not be in accord with the parties’ actual intent (to the extent there was any thought given to the forum issues at all).  And in the latter case, some not so funny things can happen on your way to what you supposed was your contractually selected forum.