Monday, November 29, 2010, 5:45 PM

Language of Forum Selection Clause Impacts Federal Jurisdiction

In FindWhere Holdings, Inc. v. System Environment Optimization, LLC, the Fourth Circuit Court of Appeals determined that the use of the word "of" in a forum selection clause instead of the word "in" can deprive federal courts of jurisdiction to hear a case.

FindWhere Holdings filed suit in the Circuit Court for Loudon County, Virginia seeking to recover from a number of defendants for an alleged breach of contract. After the defendants removed the case to the United States District Court for the Eastern District of Virginia, the plaintiff filed a motion to remand based upon the language in the contract's forum selection clause. According to the plaintiff, the language in the clause that jurisdiction "shall lie exclusively in … the courts of the State of Virginia" precluded removal of the case to Federal court. The district court agreed and remanded the case to Loudon County. Defendants appealed to the Fourth Circuit Court of Appeals.

After conducting a brief review of the factual and procedural history of the case, the Fourth Circuit addressed whether it had jurisdiction to hear the appeal given the general prohibition on appellate review of remand orders contained in 28 U.S.C. § 1447(d). The Court determined that remand orders based upon the language of a forum selection clause do "not fall within the general prohibition of appellate review for remand orders pursuant to 28 U.S.C. § 1447(d)." Only remand orders based on a lack of subject matter jurisdiction or a timely raised defect in removal procedure are barred from appellate review. Thus, the Court of Appeals had jurisdiction to review the district court's determination on the motion to remand.

When the Court of Appeals turned to the merits of the appeal, it joined the Ninth, Tenth, Fifth, and First Circuits in adopting the "widely-accepted rule that forum selection clauses that use the term 'in [a state]' express the parties' intent as a matter of geography, permitting jurisdiction in both the state and federal courts of the named state, whereas forum selection clauses that use the term 'of [a state]' connote sovereignty, limiting jurisdiction over the parties' dispute to the state courts of the named state." Ultimately, the Fourth Circuit held that because "federal courts are not courts 'of' the state of Virginia," the district court lacked jurisdiction and correctly determined that the case should be remanded to Loudon County Circuit Court.

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