How Not to Specify Jurisdiction

I generally explain the concept of ambiguity by saying that if reasonable people read a given contract provision and derive different meanings from it, that provision is ambiguous.

But that doesn’t quite capture the problem that alternative meanings pose for the contract drafter. It’s not only the reasonable reader that you’re worried about. Instead, you’re worried about anyone, reasonable or not, who misunderstands a given provision and is willing to fight about it—winning a lawsuit is a distant second-best to not being involved in litigation in the first place.

Furthermore, different people—in particular, different judges exhibiting different levels of semantic acuity—can have different views as to whether something is ambiguous.

Due to those two factors, any drafter should aim to avoid ambiguity by a wide margin. It’s not good enough that reasonable people couldn’t come up with alternative meanings. Instead, you want to preclude the other side, no matter how belligerent, addled, or poorly advised, from coming up with a remotely plausible alternative meaning that’s more favorable to them.

These thoughts came to mind on reading something that Ur-reader Michael Fleming sent my way: Portfolio Mgmt. Group, LLC v. Bitach Fund I, LLC, Case No. 09-CV-3193 (D. Minn. Mar. 2, 2010). (Click here to go to a pdf copy.)

Here’s the contract provision at issue:

5.9 CHOICE OF LAW AND JURISDICTION. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Minnesota. [Bitach] specifically agrees to the Courts of Minnesota as sole jurisdiction for litigation of any controversies arising out of this Agreement.

The plaintiff Portfolio Management Group (“PMG”) sued Bitach in state court in Minnesota; Bitach removed that action to federal district court; PMG moved for an order remanding the case to state court, but beforehand, Bitach moved to compel arbitration. The latter motion was presented to one Magistrate Judge Boylan, who issue a report and recommendation (“R&R”) recommending that the federal district court grant Bitach’s motion.

The R&R addressed the issue of state court jurisdiction, and here’s what the federal district court had to say in response:

This Court sits in Minnesota, but it is not a court of Minnesota. It is instead a court of the United States of America. The Court respectfully disagrees with Judge Boylan’s conclusion in the R&R that the phrase “Courts of Minnesota” in the forum-selection clause could reasonably be construed to include federal courts in Minnesota and is therefore ambiguous. R&R at 4. Instead, the Court agrees with the majority of federal courts that the phrase “courts of” a particular state unambiguously refers only to that state’s courts, not to federal courts sitting within the boundaries of that state.

The federal court thought that the jurisdiction provision was unambiguous, and their reading does make sense. But in terms of lessons for the contract drafter, just as relevant is the fact that another judge thought it was ambiguous. It would have been preferable if the provision at issue had been drafted so that even that judge would have thought it unambiguous.

How might that have been accomplished? If the parties had indeed intended that only state courts would have jurisidiction, I’d have referred to “any state court of Minnesota.” I don’t think you’d need to say “any state court of the state of Minnesota.” (And incidentally, I’d have written the entire provision differently.)

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

11 thoughts on “How Not to Specify Jurisdiction”

  1. A lot of contracts use the phrase 'courts in X', which certainly raises an ambiguity. What most concerns contract drafters is that the court case be heard on their home turf, without considering the federal/state aspect.

    To my mind the phrase 'courts of X' is better and as you say specifically alluding to the federal/state aspect makes it clearer still.

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  2. I'm with Simon. I don't think that most people are too concerned about whether their cases end up in federal or state court. The only question is whether it is somewhere convenient for them. I usually just opt for some flavor of "the state or federal courts located in the state of _____." The interesting thing is that party did seem to care on this point and they cared enough so that they fought two court battles over the issue.

    And am I the only one that thought that the capitalization of "Courts" in the contract at dispute would have referenced a defined term? If someone had originally handed me that I would have immediately looked for a defined term since the capitalization makes no sense. I don't think that "Courts of Minnesota" is really a proper noun. It's like saying, the Bridges of Minnesota.

    Reply
    • Mike: "Courts" is doubtless capitalized because lawyers like giving initial capitals to stuff that's important. It's standard for pleadings to refer to "the Court." Ken

      Reply
      • In Connecticut the "red book" is the manual of style for Connecticut judicial opinions. It eschews capitalization of "court" except when referring to a court by its name. So: Superior Court, trial court, this court.

        My practice is to follow the red book style in my pleadings and briefs. I sure hope not to offend the tribunals, but habit has made capitalization look hokey to me, and I choose to take the small risk of offense to avoid the certainty of looking Hokey. Or Teutonic.

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  3. I wonder if the parties intended that the disagreement be resolved in a court rather than thru arbitration.
    I suppose that "litigation" could encompass arbitration, but someone would not be terribly unreasonable in arguing that litigation means to bring a complaint in a court (or or in Minnesota).

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  4. The court did not address the potential conflict between the forum selection clause and the arbitration clause. The District court simply concluded it did not have jurisdiction to rule on the matter.

    Courts may find that they have jurisdiction to determine the scope of arbitration. While arbitration practitioners will argue that the arbitral tribunal should be the proper authority to determine the scope of arbitration via the competence-competence principle, the practice in the US allows parties to at least initially seek redress in courts to litigate issues that are "outside" the scope of arbitration. The state court in Minnesota may decide to compel arbitration, but it seems the purpose of avoiding litigation by having an arbitration clause has already been obfuscated; the parties will have gone through at least two lawsuits before they get to arbitration.

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  5. The court did not address the potential conflict between the forum selection clause and the arbitration clause. The District court simply concluded it did not have jurisdiction to rule on the matter.

    Courts may find that they have jurisdiction to determine the scope of arbitration. While arbitration practitioners will argue that the arbitral tribunal should be the proper authority to determine the scope of arbitration via the competence-competence principle, the practice in the US allows parties to at least initially seek redress in courts to litigate issues that are "outside" the scope of arbitration. The state court in Minnesota may decide to compel arbitration, but it seems the purpose of avoiding litigation by having an arbitration clause has already been obfuscated; the parties will have gone through at least two lawsuits before they get to arbitration.

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  6. Interesting… Ken, I thought that this was going to be a blog on how to avoid specifying COL/jurisdiction/venue… Sometimes we go with COL only if jurisdiction and venue are that much of an issue, and only occasionally will we remain silent on the whole matter (I don't like to do that, but…). Recently, we could not agree on COL/jurisdiction/venue in an LVT (low-value transaction), and the party on the other side of the deal insisted that we insert a paragraph that specifically stated that we had not agreed – first that I have seen that….

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  7. Drafter said, I’d have referred to “any state court of Minnesota.”

    What I do not understand is why it would not be ironclad to state, "any Minnesota State Court." It seems to me the ambiguity is encouraged if not created by the structure.

    Reply

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