Contract Clause Submitting to a Court’s Jurisdiction is not a Forum Selection Clause

On July 26, 2021, Justice Platkin of the Albany County Commercial Division issued a decision in Meritage Hospitality Group, Inc. v. North Am. Elite Ins. Co., 2021 NY Slip Op. 50700(U), holding that a contract clause submitting to the jurisdiction of the New York courts was not an agreement to venue in any of those courts, explaining:

CPLR 509 provides that the place of trial of an action shall be in the county designated by the plaintiff, unless the place of trial is changed to another county by order upon motion, or by consent as provided in subdivision (b) of rule 511. A party may move for an order changing the place of trial where the county designated for that purpose is not a proper county.

Where the plaintiff sues in an improper county, it forfeits its right to designate the place of trial, and so long as the moving defendant has taken the correct procedural steps and selected a proper county, the case should be transferred to defendant’s proposed place of trial.

As is relevant here, CPLR 503 provides that the place of trial shall be in the county in which one of the parties resided when the action was commenced, and a domestic corporation, or a foreign corporation authorized to transact business in the state, shall be deemed a resident of the county in which its principal office is located.

Meritage acknowledges that it is not a resident of New York, whereas NAE submits persuasive evidence showing that it is a resident of New York County, where its principal office is located. Indeed, Meritage concedes that New York County would be the appropriate venue for this action absent the forum selection clause. Thus, determination of the motion turns on whether the Policy language relied upon by Meritage is a forum selection clause authorizing venue to be placed in Albany County.

CPLR 501 provides that a written agreement fixing place of trial, made before an action is commenced, shall be enforced upon a motion for change of place of trial. Forum selection clauses are prima facie valid and will not be set aside unless the party opposing the clause demonstrates that the enforcement of such would be unreasonable and unjust or that the clause is invalid because of fraud or overreaching, such that a trial in the contractual forum would be so gravely difficult and inconvenient that the challenging party would, for all practical purposes, be deprived of his or her day in court.

The clause relied upon by Meritage states that the parties irrevocably submit to the exclusive jurisdiction of the Courts of the State of New York, and to the extent permitted by law, the parties expressly waive all rights to challenge or otherwise limit such jurisdiction. While Meritage contends that venue is proper in Albany County because this Court is one of the Courts of the State of New York, the quoted language speaks only to jurisdiction and says nothing about venue or the place of trial.

Jurisdiction and venue are separate and distinct concepts. Jurisdiction concerns a court’s authority to hear and determine a dispute, whereas venue pertains to the proper situs (i.e., place of trial) of an action or proceeding within the court system.

The Policy language relied upon by Meritage establishes the exclusive jurisdiction of the New York courts and constitutes a waiver of the parties’ right to challenge such jurisdiction, but it does not speak to venue. As such, the clause is not a written agreement fixing place of trial. And absent such an agreement, venue must be determined under CPLR 503, which, among other things, allows for suit in a county where one of the parties resided when the action was commenced.

While the Court is unaware of any appellate authority speaking directly to this issue, a line of cases from Supreme Court, Nassau County is instructive.

In Merchant Cash & Capital, LLC v Laulainen (55 Misc 3d 349 [Sup Ct, Nassau County 2017] [Diamond, J.] [“Merchant I“]), the parties similarly agreed that either the state or federal courts in New York shall have jurisdiction over any dispute arising from the agreement without specifying that venue will be placed in any particular county. Because the agreement fixed jurisdiction but not venue, Supreme Court held that the parties had not by agreement done away with the requirements of CPLR 503 entirely.

Similarly, in LG Funding, LLC v Advanced Pharma CR, LLC (58 Misc 3d 231 [Sup Ct, [*5]Nassau County 2017] [Steinman, J.]), the Court held that an intent to deviate from the statutory protections contained in CPLR 503 should be set forth clearly and unambiguously. Such intent is not manifest from the contractual language merely providing that the parties submit to the jurisdiction of New York court.

Meritage recognizes this adverse precedent but relies on two other decisions of the same court that are said to have reached the opposite conclusion and held that CPLR 503 doesn’t apply in these circumstances.

The decisions cited by Meritage, however, turned on the presence of contractual language waiving any claim that venue is improper. The meaning and effect of such a venue waiver was the point of contention between Merchant II and III, on the one hand, and LG Funding on the other, but none of these decisions called into question the holding or reasoning of Merchant I.

As in Merchant I, the Policy language here fixes exclusive jurisdiction and provides for a waiver of any challenge to jurisdiction but does not designate venue or waive defendant’s right to challenge venue.

Because the Policy language relied upon by Meritage pertains only to jurisdiction and does not designate a proper venue for suit or waive defendant’s right to challenge venue, the venue requirements of CPLR 503 must be met. And given that Meritage does not reside in New York and NAE resides in New York County, where its principal office is located.

(Internal quotations and citations omitted).

Stay informed!
Sign up for email alerts and notifications here.
Read more about our Complex Commercial Litigation practice.