Venue Lies Where You Lay It: Strict Construction of Forum Selection Clauses in the Ninth Circuit
In this era of tightening federal budgets and periodic government shutdowns, there can be no guarantee that any particular federal courthouse will be open for business—or even in existence—at the time an agreement spawns litigation. Under a recent Ninth Circuit decision, such a closure could be more than inconvenient: it could cut off a party’s bargained-for access to federal court.
In a matter of first impression, the U.S. Court of Appeals for the Ninth Circuit recently held that a venue-selection clause requiring that an action be filed “in” a given political division (such as a county) means exactly what it says, and no more.[1] If there is no federal courthouse physically situated in that political division at the time litigation commences, the suit may be maintained only in the state court located there.
In City of Albany v. CH2M Hill, Inc., the plaintiff municipality—the county seat of Linn County, Oregon, between Salem and Eugene—sued the Florida engineering firm CH2M Hill, Inc. for breach of contract. The City filed its suit in the Circuit Court of Linn County, pursuant to the venue-selection clause in the parties’ contracts, which provide: “Venue for litigation shall be in Linn County, Oregon.” The defendant removed the case to the U.S. District Court for the District of Oregon, and the City moved to remand on the grounds that there is no federal courthouse in Linn County. The district court granted the remand motion, and the defendant appealed, arguing that the case could be heard in the federal court in which venue lies for cases that arise in Linn County—in this case the federal courthouse in Eugene (Lane County).
The Ninth Circuit rejected this argument and affirmed the district court order granting the motion to remand. Following the Second and Fourth Circuits, the Ninth Circuit held: “An 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.”[2] The Ninth Circuit emphasized the implications of its holding by recounting the facts in the Second Circuit case, Yakin v. Tyler Hill Corp. In that case, the Second Circuit held that a venue-selection clause precluded litigation in federal court because there was no federal courthouse in the designated county at the time the plaintiff brought suit, even though there had been a courthouse—since closed—located in the county at the time the parties entered into the agreement.[3]
Depending on one’s point of view, the Ninth Circuit’s holding in City of Albany is either frustratingly or refreshingly concrete: the parties may make all of their filings online and hold conferences with the court by phone, but when it comes to venue the word “in” refers to the situs of an actual courtroom.
The import of City of Albany—and especially its reliance on Yakin—is clear: if a party to an agreement wants to ensure it doesn’t lose access to federal courts in the case of a dispute, it should avoid the familiar language requiring disputes be litigated “in the state or federal courts in Ames County, State of Ames.” If there is no federal courthouse in Ames County—or even if there is at the time of contracting but it moves or closes before litigation is filed—the reference to “federal courts” could very well be illusory. A more foolproof clause would be one requiring disputes be litigated “in the state or federal courts in which venue lies for actions arising solely in Ames County, State of Ames.”
[1] City of Albany v. CH2M Hill, Inc., 942 F.3d 1306 (9th Cir. May 29, 2019).
[2] Id. at 1308; see also Bartels v. Saber Healthcare Group, LLC, 880 F.3d 668, 674 (4th Cir. 2018); Yakin v. Tyler Hill Corp., 566 F.3d 72, 76 (2d Cir. 2009).
[3] City of Albany, 942 F.3d at 1308 (citing Yakin, 566 F.3d at 74).
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