Find Somewhere Else to Fight! Venue-Selection Clause in Contract Closes Door to Federal Courthouse Located Outside Venue
Tue Jun 4, 2019
Does a venue-selection clause in a contract requiring the parties to litigate in a specific location that does not have a federal courthouse still permit the parties to litigate in federal court? The Ninth Circuit—which covers the Western United States, Alaska, and Hawaii—unequivocally answered this question in City of Albany v. CH2M Hill, Inc.: “No.”
In City of Albany v. CH2M Hill, Inc., the City of Albany, Oregon, and CH2M Hill, Inc. executed a contract containing a venue-selection clause that said, “Venue for litigation shall be in Linn County, Oregon.” The City of Albany is the county seat of, and sits in, Linn County, Oregon. CH2M Hill, on the other hand, is an international engineering firm incorporated in Florida.
The City sued CH2M, claiming that CH2M breached its contract to provide engineering services to the City. CH2M removed the case to the United States District Court for the District of Oregon.
Under limited circumstances, parties in a lawsuit can chose to switch from state court to federal court. This is called removal. Some exceptions, however, apply. For one, federal courts have limited jurisdiction, meaning they can only hear certain cases. One type of jurisdiction is based on diversity of citizenship. Diversity of citizenship requires that all the plaintiffs come from different states than all the defendants and the amount in controversy is more than $75,000. The City of Albany and CH2M Hill meet these requirements.
After removal, however, a problem quickly arose for CH2M Hill: there are no federal courthouses in Linn County, Oregon. As a result, when CH2M removed the case, the case landed in the federal court in Eugene, Oregon—which is in Lane County, not Linn County. And what a difference two letters makes.
The City moved to remand the case to state court in Linn County. It argued that the venue-selection clause in the parties’ contract mandated that litigation occur in Linn County. The City further argued that removing the case to federal court would force the parties to litigate outside Linn County, violating the venue-selection clause. For that reason, the federal court in Eugene agreed with the City and remanded the case. CH2M appealed to the Ninth Circuit Court of Appeals.
On appeal, the Ninth Circuit affirmed the trial court’s decision, holding: “[a]n agreement limiting venue for litigation to a particular county unambiguously prohibits litigation in federal court when there is no federal courthouse located in the designated county.”
The Ninth Circuit supported its decision by relying on two similar cases from the Second and Fourth Circuits. In both cases, the courts of appeals held that the parties could not litigate in federal court because the venue-selection clauses at issue designated counties without a federal courthouse. See Bartels v. Saber Healthcare Group, LLC, 880 F.3d 668, 674 (4th Cir. 2018) (no federal courthouse in county identified in venue-selection clause); Yakin v. Tyler Hill Corp., 566 F.3d 72, 76 (2d Cir. 2009) (no federal courthouse in the designated county at the time the parties sued; federal courthouse had been relocated to different county).
In the end, the Ninth Circuit underscored the purpose of venue-selection clauses: to ensure that “litigation occurs within the geographic boundaries of that county—nothing more, nothing less.”
Finally, it should be kept in mind that venue-selection clauses are often bundled with forum-selection clauses. But these two similar-sounding provisions have very different purposes.
Forum-selection clauses define which court will decide disputes, unlike venue-selection clauses that define what geographic area the parties will litigate. For example, a proper forum-selection clause may say: “The Parties agree that all disputes will be resolved through litigation before the U.S. District Court for the Western District of Washington, Seattle Division.”
While businesses rarely expect to fight with the person or entity they contract with, it’s paramount to plan for the worst. One way to do so is to understand any forum- and venue-selection clauses in your contracts.