“Except in the most extraordinary circumstances, [courts] hold sophisticated parties to the terms of their bargain.” [That comes from a (2014) 7th Circuit United States Court of Appeals decision.]
Today’s posting will last more than a single cup of coffee. Brew a fresh pot before starting.
The actual agreement drafting examples that follow are not ones that will cause rioting in the streets. As today’s “headline” suggests, they come from part of the “boilerplate” of their parent agreements. We are using them for a number of reasons (laziness is among them). One important one is if someone can’t draft “boilerplate” to read one way and only one way, how can that person get the “one time” provisions to “say what they mean, and mean what they say.”
Take a look at these seventeen different formulations of the “forum selection” boilerplate provision:
A. This Agreement shall be governed by and construed in accordance with the Laws of Malta and each party hereby submits to the jurisdiction of the Courts of Malta as regards any claim, dispute or matter arising out of or in connection with this Agreement, its implementation and effect.
B. This agreement shall be construed and enforceable according to the law of the State of New York and the parties submit to the jurisdiction of the courts of New York.
C. Borrower and the Guarantors each hereby submit to the jurisdiction of all Federal and State courts located in the State of Florida.
D. This instrument shall be construed in accordance with the laws of Massachusetts. The Guarantor hereby consents to the jurisdiction of the state and federal courts of the Commonwealth of Massachusetts.
E. The undersigned hereby irrevocably submits to the jurisdiction of any New York State or Federal Court located in New York City, over any action or proceeding arising out of any dispute between the undersigned and the Lender.
F. The debtor irrevocably submits and consents to the jurisdiction of any court of the State of Pennsylvania located in Allegheny, and waives any and all objections to jurisdiction or venue that any such party may have under the laws of the State of Florida or otherwise in those courts in any such suit, action, or proceeding.
G. The law for the time being in force in the Republic of Singapore 8 shall apply to this agreement. . . and parties hereby agree to submit [to] the jurisdiction of the Courts of Singapore.
H. The parties agree that the Laws of the State of Georgia have exclusive jurisdiction over any dispute that may arise under, or in connection with, the enforcement o[r] interpretation of this Agreement. Distributor waives any objection based on inconvenience of venue and any objection to venue or forum for such claim or cause of action, and hereby submits to jurisdiction and venue in the Superior Court of Cobb County, Georgia.
I. Each of the parties hereto hereby irrevocably submits to the jurisdiction of the United States District Court for the Northern District of Illinois, Eastern Division, or the Illinois State Court in Cook County for any action, suit or proceeding arising out of or in connection with the transactions contemplated by the Agreement.
J. Any litigation concerning this contract shall be governed by the law of the State of Florida, with proper venue in Palm Beach County.
K. This agreement . . shall be governed by the laws of the State of New York. . . [Party A] agrees to submit to the jurisdiction of the Federal or State courts in New York City in any action which may arise out of this agreement and said courts shall have exclusive jurisdiction over all disputes between [Party B and Party A]
L. Any legal suit, action, claim, proceeding[,] or investigation arising out of or relating to this Agreement may be instituted exclusively in the courts of Makati City and Employee waives any objections which he may now or hereafter have to such venue of any such suit … and irrevocably submits to the personal and subject matter jurisdiction of any such court.
M. This agreement is accepted and entered into in Missouri and any question regarding its validity, construction, enforcement, or performance shall be governed by Missouri law. Any legal proceeding arising from or in any way regarding this Agreement shall have its venue located exclusively in the Circuit Court of St. Louis County, Missouri, and the parties hereby expressly consent and submit themselves to the personal jurisdiction and venue of the court.
N. This Agreement shall be governed by and construed in accordance with the law of the State of Delaware. . . [T]he parties hereby (i) submit to the jurisdiction of the state and federal courts located in the State of Delaware for purposes of any legal action or proceeding brought under or in connection with this Agreement, (ii) agree that exclusive venue of any such action or proceeding may be laid in the State of Delaware and (iii) waive any claim that the same is an inconvenient forum.
O. This Agreement and the rights and obligations of the parties shall be governed by and construed in accordance with the laws of the State of Florida. The parties hereto consent to Broward County, Florida as the proper venue for all actions that may be brought pursuant hereto.
P. Any controversy relating to this agreement or any modification or extension of it and any proceeding relating thereto shall be held in Minneapolis, Minnesota. The parties hereby submit to jurisdiction for any enforcement of this agreement in Minnesota.
Q. In the event of any doubt, question or conflict which may arise from the interpretation or implementation of this agreement, the parties agree to select the venue and jurisdiction of the Courts and Tribunals of the city of Madrid.
That’s a lot of ways to say the same thing. BUT, do they really say the same thing? [To deflect a possible distraction about the general enforceability of a “forum selection clause,” they are generally enforceable. The United States Supreme Court said that in 1972 – yes, they are prima facie valid and presumptively enforceable. That’s not to say that a court “has” to her your case just because you say so. Generally, there has to be some connection (nexus) between the dispute or the parties and the court you’ve chosen. There are some states in the “business” of making their courts available in commercial disputes if the money involved is more than a certain threshold. We (don’t) wonder which industry got the legislatures to provide such an opportunity.]
What Ruminations (as informed by the courts) is focusing on today is whether these clauses are mandatory or merely permissive. We are pretty sure that virtually everyone putting a forum selection clause in an agreement wants it to be mandatory. If we are correct, then there are some failing grades to be passed around.
To get rolling, here’s what courts thought about the seventeen examples above: A through J are permissive; L through Q are mandatory.
We’ll focus on what made L through P mandatory. Simply speaking (or simply writing), L, M, and N say “EXCLUSIVE(LY).” That is a pretty simple way of telling courts that the stated forum is the ONLY one that can be utilized. That’s what “exclusive” means. At least, that’s what “exclusive” means when it is attached to the place of venue. Look at G (where “exclusive” is used). There it is attached to “whose” law will be applied, not to where the boxing match must take place.
Is that the only way to make a forum selection clause mandatory? Looking at “O,” obviously not. There, the court seized on the word, “the,” in the phrase, “as the proper venue.” Thin reed? Yes. Did it make a difference? Yes. Contrast that formulation with the absence of a definite article (“the”) in example J.
What was it about P that made it exclusive? It wasn’t “hereby submit to jurisdiction.” That’s “permissive.” It was the “shall be held in Minneapolis… .” Here, the court held “shall” to mean “must.” Those not “up to date” on the shall/must/will/may issue, might want to click HERE.
What about O? Was it the Prado? We think not. After all, the clause doesn’t use “exclusive.” It didn’t say “shall” (yes, we know that “shall” raises questions). It didn’t say must. What it did do is bind the parties to honor their agreement to “select” Madrid. It would be a breach of an agreement to litigate in Madrid if a party sued elsewhere. Presumably, money damages alone would not compensate the other party. So, a court would “specifically enforce” the agreement to select Madrid.
Now, readers, here’s the exam question. What do you think about this formulation? Permissive? Exclusive?
Any legal action. . . with respect to this Agreement. . . may be brought in the courts of Antigua, and/or in the Courts of the city of Sao Paulo, state of Sao Paulo, Federative Republic of Brazil, at the sole option of the Lender, and the Borrower and Guarantor hereby accept and irrevocably submit to the jurisdiction of such courts for the purpose of any such action or proceeding.
Yes, is says, “may,” But, it also says, “irrevocably submit.” So, which is it? To the court, reading the clause “as a whole,” and giving meaning to every word, the word “may” modified “irrevocably submit,” making this forum selection clause permissive, not exclusive.
Yes, Ruminations knows that we’ve really, really, really dragged today’s post out (and, we’re even going to tack on an entirely different “story” as dessert). But, there is an important point to be made – “Creativity is not an admirable trait when it comes to drafting agreements.” Courts don’t need the work. Parties neither need distracting side issues nor the cost to resolve them. When it comes to “boilerplate,” how about sucking it up and adopting universally understood and predictable language, such as:
The Federal and State courts in [the state of __________] [____________, County, ____________] will have exclusive jurisdiction over any disputes arising from or connected in any way with this Agreement and the parties expressly consent and submit themselves to the personal jurisdiction and exclusive venue of those courts.
[We caution draftspeople that if you choose a County and really want Federal jurisdiction, make sure there is a Federal court venued in that county. Yes, there is case law on that. And, while we’re at it, how does one reconcile the conflict between an agreement’s mandatory arbitration provision and one that says, “all disputes must be heard by the courts of ‘X’ State”? Oh, isn’t it so easy to cut and paste those dull, monotonous, and boring boilerplate provisions into our agreements?]
Let’s think about this. Aren’t there other, similar “boilerplate” provisions that don’t need to show a “personal” touch? How about even within the same company or law firm? If any readers have nominations, please share them with all of us by finding the “Leave a Reply” box below, and doing so.
[Today’s blog posting relies on a May 13, 2015 opinion from Florida’s Third District Court of Appeal in Michaluk v. Credorax (USA), Inc. To see the opinion, click HERE.
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