How to Draft a Forum Selection Clause

When entering into a contract with a party based in another state, Virginia businesses may wish to include in their agreements a clause specifying that any future disputes arising under the contract will be litigated in Virginia rather than the home state of the other party. For example, if you own and operate a Virginia business and you subcontract some IT consulting work out to a subcontractor headquartered in Idaho, you would probably want to make sure that if a dispute arises, the litigation will be brought here in Virginia rather than Idaho. It may also be important to you to have the dispute resolved in Virginia state court rather than in federal court, or vice versa. Can you select a litigation forum in advance by designating the appropriate forum in your contract? Yes, but the words you use are critical to how the courts will enforce the agreement.

Earlier today, in the course of granting a motion to dismiss I had filed on behalf of a client, Judge Payne of the Eastern District of Virginia issued a ruling demonstrating that judicial interpretation of so-called forum selection clauses can hinge on every word used in the agreement. The clause at issue stated that, in the event of a lawsuit, “the proper jurisdiction and venue of any such lawsuit shall be the courts of the Commonwealth of Virginia.” The plaintiff sued my client in federal court in Richmond. In response to our motion to dismiss for improper venue, the plaintiff took the position that the clause was not mandatory but merely permissive; that it specified Virginia state court as one of several permissible venues, rather than the only place a party could sue. The court held the clause was mandatory and dismissed the action.

The court noted that merely specifying “Virginia” as a forum for disputes does not necessarily dispose of the matter. First, inquiry must be made into whether the forum-selection clause designates geography or implicates sovereignty. For example, if the clause had referred to the courts “in” Virginia rather than “of” Virginia, the clause could be interpreted to mean any court sitting within the geographic boundaries of the Commonwealth of Virginia, which would include both state and federal courts. By referring to the courts “of” Virginia, the court interpreted the phrase to implicate courts chartered by a specified sovereign: in other words, Virginia state courts.

The plaintiff tried to keep the case in federal court by pointing out the absence of mandatory language like “exclusive” or “only.” The court responded by explaining that forum-selection clauses will be read in their entirety, and there is no “talismanic word” that will automatically render a clause permissive or mandatory.

When Judge Cacheris of the Alexandria Division was faced with having to interpret a forum selection clause a couple of weeks ago, he dealt with it in much the same way. In Nahigian v. Juno-Loudoun, LLC, a case arising out of the sudden departure of the Ritz-Carlton Hotel Company from the Creighton Farms neighborhood in Leesburg, the plaintiffs originally filed their case in Loudoun County Circuit Court but the defendants removed the case to federal court. The plaintiffs sought to remand the case back to state court, pointing to a forum-selection clause which provided: “In connection with any litigation between Buyer and Seller arising out of this Agreement. . . [t]he sole venue for any litigation shall be Loudoun County, Virginia.”

Notice that unlike the clause in my case, the language does not refer to the courts “of” Loudoun County, Virginia. Rather, it refers to Loudoun County in the geographic sense. The federal court sitting in Alexandria has jurisdiction over matters arising in Loudoun County. “A forum-selection clause that imposes a geographic restriction still permits litigation in the federal or state courts within that geographic area,” the court wrote. Thus, despite the fact that the contract referred specifically to Loudoun County, the court denied the motion to remand the case to the Loudoun Circuit Court.

What’s a contracting party to do? If venue is important, be crystal clear in the language you use. Refer to the designated court system by name so that there can be no confusion about whether you were merely referring to a location in a geographic sense. Use mandatory language like “shall” and avoid permissive terms like “may.” Leave no room for misinterpretation. If, for example, you want all disputes to be resolved in Fairfax County Circuit Court and nowhere else, say so. Do not merely provide in your agreement that “the parties consent to jurisdiction in Fairfax County.” That’s not even enough to guarantee the case will be brought in Virginia, as it does not rule out the possibility of a court having jurisdiction in another part of the country. Instead, say something like, “the sole and exclusive venue for any lawsuit arising out of or relating to this agreement shall be the Circuit Court of Fairfax County, Virginia.” It’s hard to read from that anything other than what you intended, and that’s the way you want it.