As a follow-up to this recent post, let me tell you about another opinion featuring a dispute over a jurisdiction provision. (My thanks to the indefatigable Steven H. Sholk for the lead.)
The case is D.B. Zwirn & Co. v. Dittman, No. 09 Civ. 10498 (S.D.N.Y. filed Mar. 23, 2010) (click here to go to a pdf copy). At issue was the following language:
The Company may bring an action or special proceeding in a state or federal court of competent jurisdiction sitting in the City of New York, for the purpose of temporarily, preliminarily or permanently enforcing the provisions of this Agreement or seeking any other remedy, and the Employee consents to and hereby submits to the exclusive jurisdiction of any state or federal court located in the City of New York for the purpose of any disputes arising hereunder or any equitable relief arising out of or relating to this Agreement.
The question was whether this language provided for mandatory or permissive jurisdiction. The court held that the provision was ambiguous:
The first part of the sentence, standing alone, is obviously permissive: That DBZ may sue in New York City expressly leaves open the possibility that either party could file suit elsewhere, including Texas. However, the use of the word “exclusive” in the second part of the sentence indicates that the parties meant for New York City to be the sole forum for a suit arising under the Confidentiality Agreement. But if, as DBZ argues, New York City is the exclusive forum, then use of the word “may” makes little sense.
I’d have analyzed it differently. For one thing, this provision isn’t ambiguous. Instead, the question is whether the first part of the sentence is inconsistent with the second part. (See chapter 6 of MSCD, or this March 2008 blog post, for more on the different kinds of uncertainty that afflict contract language.)
And it’s not that use of “may” makes little sense for purposes of mandatory jurisdiction; the “may” is fine. Instead, the problem is absence of the word only, as in “The Company may bring an action or special proceeding [insert only] in a state or federal court of competent jurisdiction … .”
Because the first part of the sentence appropriately grants discretion but doesn’t specify that the discretion is limited, I don’t think that saying the two parts of the sentence are inconsistent quite captures it. Instead, it’s more that the first part is overly broad, with the second part providing greater specificity. Given the lack of conflict, I think the court could just as easily have held that the contract provides for mandatory jurisdiction.
Ken,
What's the purpose of the the first half of the language (i.e. the phrase, "The Company may bring an action or special proceeding in a state or federal court of competent jurisdiction sitting in the City of New York, for the purpose of temporarily, preliminarily or permanently enforcing the provisions of this Agreement or seeking any other remedy")? If they had just left this language out, wouldn't the default rule be that the the Company can bring a lawsuit? What is added by expressly saying so? If they had left this first part out, does that solve the problem?
One way to look at the first phrase is that it is just a recital, setting up what may have been the only point of this language–exclusive jurisdiction. It looks like they were saying, "Ok guys, we all know that the law allows you to bring a lawsuit in New York–well, let's agree that New York is the only place you can bring it." Maybe the lesson here is to be pithy.
Paul: Specifying permissive jurisdiction in a contract isn't necessarily an exercise in stating the obvious. It may be that but for its having consented to the jurisdiction of specified courts, a contract party might have been in a position to object to jurisdiction. I don't know how that might have played out in this case. Ken
Ken,
I don't see how one could specify exclusive jurisdiction without also, at least impliedly, consenting to the jurisdiction designated as exclusive. In the cited language, the consent to the jurisdiction of NY courts is actually explicit. Here is just the second part of the cited language, changing "Employee" to "parties":
The parties consent to and hereby submit to the exclusive jurisdiction of any state or federal court located in the City of New York for the purpose of any disputes arising hereunder or any equitable relief arising out of or relating to this Agreement.
I don't see what the first part of the cited language adds to this.
Paul: It's pretty standard to draft jurisdiction provisions from the perspective of both the party bringing a claim and the party that's the target of the claim. That's flirting with overkill, but I think it has merit. Ken
I’m in Paul’s camp in thinking the first clause is superfluous. The NY courts were (presumably) already courts of competent jurisdiction to hear the claims at issue, and therefore stating that such courts may be prevailed upon by one party or the other doesn’t serve to create that competency.
My understanding (and, mind you–we’re slipping into substance here versus drafting) is that a private contract cannot be used to create competency of a court, it can only destroy it (as a private matter of that particular contract). I cannit contractually agree to create competency and jurisdiction in a court that doesn’t already have it (since jurisdiction of a court is created by law and not by private contract). Thus, since the first clause in the above couldn’t serve to create the right to bring a claim in a NY court, it is superfluous.
Similarly, I always cringe when, for example, I see a venue and choice of law clause specifying NY law and courts in a contract between two parties with, between the two of them, zero contacts with the State of New York. That idea is occasionally served up as a compromise where the parties can’t agree on which of them wins the venue and CofL battle, but I think it ends up being unenforceable by either party (or worse, creates a contract that neither party can enforce because neither has a court it can actually use).
Regardless, I think we all can agree that (i) the contract sentence at issue was poorly drafted, and (ii) the court likely got it wrong.
Michael: I see your (and Paul's) point: because the question of whether a party can bring suit in a given court is a matter of law, saying in a contract that the party has the right to bring suit in that court doesn't accomplish anything. Having the other party consent to jurisdiction of that court is what matters.
I've been known to consider substance sporadically :-) , so I'll think this over. But here's one situation where your logic might not hold: New York General Obligations Law 5-1402 says that as long as the contract is for a stated minimum amount, New York courts will accept jurisdiction if the contract specifies New York law as the governing law and says that New York courts have jurisdiction. (I haven't gone back to read the case, but for all I know maybe that's why the parties specified New York law: maybe New York courts wouldn't otherwise have had jurisdiction.)
Ken
I'm certainly no NY lawyer so I'll defer to the experts.
I would urge caution though — If neither party has any relationship to NY but nonethless both denote NY law as their contractually chosen law, that whole process would likely violate the Rstmt of Conflict of Laws § 187(2)(a) (the contractual choice of law will be respected unless "the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice"). NY has gone over Section 187 a number of times, while not hitting this specific point, but I think one could say that 187(2) has been adopted by NY's highest court — So, the parties could never legitimately reach the tipping point of having first agreed upon NY law, and thus this clause would never come into effect. Of course, if both of the parties and the court are all in cahoots on this scheme there'd be nobody to complain, and we'd never find out whether this is really OK.
Michael: I see your (and Paul's) point: because the question of whether a party can bring suit in a given court is a matter of law, saying in a contract that the party has the right to bring suit in that court doesn't accomplish anything. Having the other party consent to jurisdiction of that court is what matters.
I've been known to consider substance sporadically :-) , so I'll think this over. But here's one situation where your logic might not hold: New York General Obligations Law 5-1402 says that as long as the contract is for a stated minimum amount, New York courts will accept jurisdiction if the contract specifies New York law as the governing law and says that New York courts have jurisdiction. (I haven't gone back to read the case, but for all I know maybe that's why the parties specified New York law: maybe New York courts wouldn't otherwise have had jurisdiction.)
Ken