If You Want Exclusive Jurisdiction, You’d Better Make That Clear

Jurisdiction provisions (also known as forum-selection provisions) are a fruitful source of dispute. Check out this May 2011 post, as well as this post and this post on AdamsDrafting.

Now, thanks to Chris Fulmer, a solo practitioner based in Raleigh, North Carolina, I learned about the glamorously named case of Roth v. Penguin Toilets, LLC, a case decided by a North Carolina trial court. (Go here for a copy of the court’s order.)

Roth had been an employee and member of Penguin Toilets. In its order, the court considered Penguin Toilets’ motion that Roth’s complaint be dismissed because his claims were subject to a forum-selection provision that required that any litigation be conducted in Wayne County, Michigan. Here’s the provision at issue (emphasis added):

This Operating Agreement is being executed and delivered in the State of Michigan and shall be governed by, construed, and enforced in accordance with the laws of the State of Michigan. Any dispute or other legal action concerning this Agreement, including any arbitration or litigation proceedings shall be conducted in Wayne County, Michigan unless the Arbitrators identify a more suitable and agreeable venue and the Members consent to the jurisdiction and venue of any State or Federal Court located therein.

The court held that this provision didn’t apply to Roth’s employment by Penguin Toilets, but went on to hold as follows:

Even if this Court found the Original O.A.M. and/or Current Operating Agreement’s forum selection clause was integrated into the Employment Agreement, Plaintiff would still be able to bring this action in North Carolina because the forum selection clause is not mandatory. …

Here, the forum selection clause provides that “[a]ny dispute or other legal action concerning this Agreement, including any arbitration or litigation proceedings shall be conducted in Wayne County, Michigan unless the Arbitrators identify a more suitable and agreeable venue and the Members consent to the Jurisdiction and venue of any State or Federal Court located therein.” (Current Operating Agreement A-24.) While the word “shall” indicates that the proceedings are to be conducted in Wayne County, Michigan, it does not say that this is the only venue where proceedings may be conducted. North Carolina courts have found that mandatory selection clauses include words “such as ‘exclusive’ or ‘sole’ or ‘only’ which indicate[] that the contracting parties intended to make jurisdiction exclusive.”

It’s hard to imagine that the drafter had anything other than exclusive jurisdiction in mind by specifying that any litigation “shall be conducted in Wayne County, Michigan.” In particular, specifying as an alternative jurisdiction any venue selected by the arbitrators that the parties agree on would be pointless if Michigan jurisdiction were nonexclusive. (For my analysis of a very similar provision, see this January 2008 post on AdamsDrafting and MSCD 2.93.)

But I’m not about to start gnashing my teeth and moaning about how the court frustrated the parties’ intent. That’s because the drafter was asking for trouble by using suboptimal wording.

Let’s look at this from a categories-of-contract-language perspective. Using passive-voice language of obligation doesn’t make much sense, because it suggests that bringing suit anywhere other than Michigan would constitute a breach of contract, with the remedy being some sort of breach-of-contract claim.

Instead, it’s more logical to address jurisdiction by means of language of discretion. If jurisdiction is exclusive, specify that discretion is limited by saying that suit may be brought only in the specified jurisdiction. And I’d reinforce that by having the parties consent to the exclusive jurisdiction of the specified courts.

Here’s a sample provision from a contract generated using Koncision’s confidentiality-agreement template (it reflects only one out of various permutations offered in the questionnaire):

If either party brings against the other party any proceeding arising out of this agreement or arising out of disclosure or use of Confidential Information, that party may bring that proceeding only in the United States District Court for the Eastern District of Pennsylvania or, only if there is no federal subject matter jurisdiction, in any state court of Pennsylvania sitting in Philadelphia, and each party hereby submits to the exclusive jurisdiction of those courts for purposes of any such proceeding.

If jurisdiction were nonexclusive, you could probably get away with omitting “only” and “exclusive” from the above provision, but instead I’d omit “only” but avoid the possibility of confusion by adding “nonexclusive”.

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.