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Consent to Jurisdiction in Business Litigation, According to One Court, Is Not the Same as Mandatory Forum Selection

kentuckyWhen a company does business across state lines, it may need to consider questions about jurisdiction over various potential disputes. An extensive and complicated body of law addresses when and how courts may exercise personal jurisdiction over defendants. Many contracts include “choice of law” or “forum selection” provisions, which identify a specific state and county as the proper jurisdiction and venue for lawsuits. The Delaware Court of Chancery recently ruled on a dispute over a choice of law provision, in which the defendant argued that the plaintiffs’ consent to jurisdiction in Kentucky required them to bring their lawsuit there. The court disagreed, noting that the contract did not “contain clear language indicating that litigation will proceed exclusively in the designated forum.” In re Bay Hills Emerging Partners I, L.P., et al, C.A. No. 2018-0234-JRS, mem. op. at 13 (Del. Ct. Chanc., Jul. 2, 2018).

Forum selection is an important part of any contract that involves parties in different jurisdictions, especially when relevant laws significantly differ from one another. This includes conflicts between the laws of two or more states, and conflicts between federal and state law. The parties to a contract need to know which laws will apply. Courts have developed rules and procedures for determining which jurisdiction’s laws apply in a particular situation, but that procedure is never simple or easy. Agreeing in advance to jurisdiction and venue can save a great deal of headache in many situations.

The defendant in Bay Hills is the official administrator of the Commonwealth of Kentucky’s retirement system. Through investments, it became the sole limited partner in four Delaware-based limited partnerships (LPs). It executed limited partnership agreements (LPAs) that included provisions allowing it to remove general partners “for cause.” Bay Hills at 4. In May 2017, the defendant exercised this right as to the general partners of all four LPs. It later withdrew its notice of removal, but served a second notice of removal on all four general partners in February 2018.

The four general partners filed suit in Delaware in April 2018, claiming that the defendant did not have adequate cause to remove them. The defendant filed a lawsuit in Kentucky a week later, asking for a declaratory judgment affirming the plaintiffs’ removal for cause. It also moved to dismiss the Delaware case, arguing in part that the forum selection clause in all four LPAs requires the plaintiffs to file suit in Kentucky. This motion was the subject of the Delaware court’s recent ruling.

The court rejected the defendant’s argument, finding that the forum selection clause is permissive, not mandatory. Id. at 12. The clause states that the parties consented to jurisdiction in Kentucky, and venue in Franklin County. The court held, however, that the clause “does not state (or otherwise imply) that Franklin County Circuit Court is the exclusive forum.” Id. at 13 [emphasis in original].

Business litigation attorney James G. Schwartz has represented businesses and business owners in the Bay Area for over forty years. To schedule a free and confidential consultation with a member of our experienced and knowledgeable team, please contact us today online or at (925) 463-1073.

More Blog Posts:

U.S. Supreme Court Reverses California Court’s Claim of Personal Jurisdiction Over Out-of-State Corporations, Pleasanton Business & Commercial Law Blog, August 14, 2017

Delaware Supreme Court Ruling Changes Personal Jurisdiction Rules for Out-of-State Businesses, Pleasanton Business & Commercial Law Blog, April 29, 2016

Supreme Court Limits Jurisdiction of U.S. Courts over Foreign Corporations with Domestic Subsidiaries, Pleasanton Business & Commercial Law Blog, March 28, 2014

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