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In Pursuit of a More Perfect Forum Selection Clause

Attorneys who draft contracts regularly insert forum selection clauses into them that require the parties to litigate their disputes in certain locations. Attorneys who litigate breach of contract claims regularly turn to those clauses before filing suit to determine the proper venue in which to file their claims. But a word to the wise – if you draft or rely on a forum selection clause, you need to be mindful of the Court of Appeals’ recent decision in Rieth-Riley Construction Co., Inc. v. Ecopath Contracting, LLC, unpublished opinion per curiam of the Court of Appeals dated June 9, 2015 (Docket No. 321562).

This case involved a contractual dispute over the provision of asphalt materials and services. The parties’ contract included the following forum selection clause:

“Buyer and Seller each hereby irrevocably submits to the personal jurisdiction of the federal and state courts sitting in Arizona with respect to any and all claims that either party hereto may assert against the other arising out of relating to this Service Agreement and each party hereto waives any defense to the exercise of such jurisdiction based on venue or forum non conveniens defenses.”

After the defendant seller failed to perform the contract, the plaintiff buyer filed a breach of contract suit against the defendant in Michigan state court. The defendant responded with a summary disposition motion arguing the forum selection clause prevented the plaintiff from filing suit in Michigan. The trial court agreed and dismissed the case pursuant to MCL 600.745(3).

The Court of Appeals reversed the trial court. The panel held that a “close reading of the contract provision in question [makes] clear that the clause does not grant Arizona state and federal courts exclusive jurisdiction over the parties’ disputes.” In support of that holding, the Court stated:

“unless certain exceptions apply, MCL 600.745(3) requires dismissal of an action on the basis of forum selection grounds ‘[i]f the parties agreed in writing that an action on a controversy shall be brought only in another state and it is brought in a court of this state . . .’ (Emphasis added). In other words, a forum-selection clause does not divest Michigan of personal jurisdiction; rather, a forum-selection clause is simply a contractual agreement between the parties and dismissal of a lawsuit otherwise properly filed in Michigan is required only when the parties evinced an ‘intent to forgo personal jurisdiction in Michigan and [to] consent to exclusive jurisdiction in another forum.’ Turcheck v. Amerifund Fin, Inc, 272 Mich App 341, 344; 725 NW2d 684 (2006) (emphasis in original).”

The Court then itemized the deficiencies in the forum selection clause at issue and, for the benefit of the bench and bar, suggested appropriate language to effectuate the contract drafter’s purpose:

“[W]hile granting jurisdiction to Arizona state and federal courts, nowhere in this provision did the parties express a desire to make that grant of jurisdiction and to forgo personal jurisdiction in Michigan. For example, the parties did not use any restrictive language such as ‘exclusive,’ ‘sole,’ or ‘only’ to make plain their intent to select an exclusive forum, they also did not include mandatory language to specify that any litigation ‘shall’ or ‘must’ be brought in Arizona state of federal courts, and they did not otherwise convey an intent to prohibit litigation in Michigan or another appropriate forum.”

It is not often that Michigan Courts give such explicit guidance on how to draft contracts. The Reith-Riley Court’s blueprint for drafting exclusive forum selection clauses will benefit both drafters and litigators alike.

For more information regarding forum collection clauses, please contact Jennifer Grieco at jgrieco@nagmlaw.com.