Case Title: Preferred Capital, Inc. v. Power Engineering Group, Inc.

Citation: 2007-Ohio-257

Docket Number: 20052134

State: ohio

Court: Ohio Supreme Court

Date: 2007-02-07T00:00:00Z

Document:
[Cite as Preferred Capital, Inc. v. Power Engineering Group, Inc., 112 Ohio St.3d 429, 2007-
Ohio-257.] 
 
PREFERRED CAPITAL, INC., APPELLEE, v. POWER ENGINEERING GROUP, INC; 
PAC HEATING , INC., ET AL., APPELLANTS. 
[Cite as Preferred Capital, Inc. v. Power Engineering Group, Inc.,  
112 Ohio St.3d 429, 2007-Ohio-257.] 
In a contract between two commercial entities, a floating forum-selection clause 
is valid absent a finding of fraud or overreaching or a finding that 
enforcement of the clause would be unreasonable or unjust — A floating 
forum-selection clause may be held to be unreasonable if enforcing it 
would be against public policy. 
(No. 2005-2134 – Submitted September 20, 2006 – Decided February 7, 2007.) 
APPEAL from the Court of Appeals for Summit County,  
Nos. 22475, 22476, 22477, 22478, 22485, 22486, 22487, 22488, 22489, 22497, 
22499, 22506, and 22513, 163 Ohio App.3d 522, 2005-Ohio-5113. 
__________________ 
SYLLABUS OF THE COURT 
1. 
In a contract between two commercial entities, a forum-selection clause 
with no reference to a specific jurisdiction or jurisdictions is valid absent a 
finding of fraud or overreaching or a finding that enforcement of the 
clause would be unreasonable and unjust. (Kennecorp Mtge. Brokers, Inc. 
v. Country Club Convalescent Hosp., Inc. (1993), 66 Ohio St.3d 173, 610 
N.E.2d 987, syllabus, followed.) 
2. 
A forum-selection clause may be held to be unreasonable if it would be 
against public policy to enforce it. 
__________________ 
 
MOYER, C.J. 
{¶ 1} In this appeal, we are asked to determine whether a forum-
selection clause that does not name a specific jurisdiction is valid and enforceable. 
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{¶ 2} Appellants are 12 out-of-state commercial entities that entered into 
lease agreements for telecommunications equipment with NorVergence, Inc., a 
New Jersey corporation.  The lease agreements signed by appellants were 
virtually identical.  The leases required appellants to make payments for 60 
months and included a forum-selection clause stating:  “This agreement shall be 
governed by * * * the laws of the State in which Rentor’s principal offices are 
located or, if this Lease is assigned by Rentor, the State in which the assignees’ 
principal offices are located * * * and all legal actions relating to this Lease shall 
be venued exclusively in a state or federal court located within that State * * *.”  
At the time the leases were entered into, NorVergence’s principal office was 
located in New Jersey. 
{¶ 3} On September 30, 2003, before appellants signed the leases, 
NorVergence executed a Master Program Agreement with appellee, Preferred 
Capital, Inc.  This agreement allowed NorVergence, “from time to time” to assign 
its interest in these lease agreements to Preferred Capital.  Preferred Capital’s 
principal offices are in Ohio. 
{¶ 4} NorVergence assigned its interest in the appellants’ lease payments 
to Preferred Capital – in most cases the day after the leases were executed.  
Averring that NorVergence had failed to provide the savings promised, the 
appellants stopped making their lease payments.  NorVergence subsequently filed 
for bankruptcy protection and was later found to have violated the Federal Trade 
Commission Act.  Fed. Trade Comm. v. NorVergence, Inc.  (July 22, 2005), N.J. 
No. 04-5414, 2005 WL 3754864. 
{¶ 5} Preferred Capital sued each of the appellants separately in the 
Summit County Court of Common Pleas.  The trial court sustained appellants’ 
individually filed Civ.R. 12(B)(2) motions to dismiss for lack of personal 
jurisdiction.  On appeal, the court of appeals consolidated the cases and reversed 
January Term, 2007 
3 
the judgments, holding that the forum-selection clauses were valid and 
enforceable; we accepted appellants’ discretionary appeal. 
{¶ 6} We begin our analysis by reiterating our previous holding that “the 
requirement that a court have personal jurisdiction over a party is a waivable right 
and there are a variety of legal arrangements whereby litigants may consent to the 
personal jurisdiction of a particular court system. Moreover, in the light of 
present-day commercial realities, it has been stated that a forum selection clause 
in a commercial contract should control, absent a strong showing that it should be 
set aside.” Kennecorp Mtge. Brokers, Inc. v. Country Club Convalescent Hosp., 
Inc. (1993), 66 Ohio St.3d 173, 175, 610 N.E.2d 987, citing The Bremen v. 
Zapata Off-Shore Co. (1972), 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513. 
{¶ 7} In Kennecorp, we adopted a three-pronged test, similar to the test 
in Bremen to determine the validity of a forum-selection clause: (1) Are both 
parties to the contract commercial entities? (2) Is there evidence of fraud or 
overreaching? (3) Would enforcement of the clause be unreasonable and unjust?  
Kennecorp, 66 Ohio St.3d 173, 610 N.E.2d 987, syllabus.  In Kennecorp, a 
specific forum, Ohio, was specified in the clause.  Here, the facts are slightly 
different.  Rather than a specific named forum, such as Ohio or New Jersey, the 
clause allows for the forum to change depending on the state in which the 
headquarters of the entity that holds the interest in the lease payments are located.  
This type of forum-selection clause has been called a “floating forum clause.”  
While this distinction is important in the application of the test, we conclude that 
the rule set forth in Kennecorp still applies. We next apply the test to the facts of 
this case. 
Commercial Nature of the Contract 
{¶ 8} “Commercial forum-selection clauses between for-profit business 
entities are prima facie valid. * * * By contrast, in Ohio, forum-selection clauses 
are less readily enforceable against consumers.”  Information. Leasing Corp. v. 
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Jaskot, 151 Ohio App.3d 546, 2003-Ohio-566, 784 N.E.2d 1192, ¶ 13.  
Appellants argue that they are “mom and pop” or small businesses and should not 
be considered sophisticated commercial entities.  We reject that argument. First, 
there is nothing in the record to suggest that all appellants are indeed small 
businesses; moreover, appellants’ suggestion that they are small businesses or 
sole proprietorships is not material.  The contracts are commercial in nature 
between two for-profit entities.  “Unlike a consumer who enters into a contract 
with a commercial entity, [a sole proprietor] is presumed to have some experience 
in contractual and business matters.”  Id.. at ¶ 14.  As we articulated in 
Kennecorp, forum-selection clauses should be distinguished between commercial 
and noncommercial parties.  If both parties are for-profit, commercial entities, the 
relative size or sophistication of the parties is not a material factor. 
Fraud or Overreaching 
{¶ 9} There is no evidence of fraud or overreaching in this case.  While 
appellants do allege that NorVergence intended to defraud them, there is no 
evidence that appellants agreed to the forum-selection clause as a result of fraud.  
The clause was clearly and legibly printed on the second page of a two-page 
contract.  No effort was made to conceal or hide the clause.  In fact, printed in 
large type and in all capitals directly above the signature line of the guaranty on 
the front page is the sentence “You agree to jurisdiction and venue as stated in the 
paragraph titled Applicable Law of the rental [agreement].”   Additionally, there 
is a valid business reason for including a floating forum clause in a contract.  
Appellee and its amici point out that a floating forum clause makes it easier for 
the lessor to sell his interest in the lease payments to a finance company.  We 
therefore conclude that there is an absence of fraud and overreaching by 
NorVergence in relation to the forum-selection clause. 
Unreasonable or Unjust 
January Term, 2007 
5 
{¶ 10} The final question to be answered under Kennecorp is whether 
enforcing the clause would be unreasonable and unjust.  We begin our analysis by 
reiterating the long-held principle that parties to contracts are presumed to have 
read and understood them and that a signatory is bound by a contract that he or 
she willingly signed.  Haller v. Borror Corp. (1990), 50 Ohio St.3d 10, 14, 552 
N.E.2d 207; DeCamp v. Hamma (1876), 29 Ohio St. 467, 471-472. 
{¶ 11} Appellants aver that litigating in Ohio would be burdensome 
because they are out-of-state entities.  However, none of the appellants have 
offices in New Jersey, which is where the contract would have been litigated had 
NorVergence not assigned its interest.  We are not persuaded that litigating a 
claim in Ohio would be any more burdensome for appellants than litigating a 
claim in New Jersey or that requiring the parties to litigate in Ohio would deprive 
them of their day in court.  Presumably, for some appellants, litigating a dispute in 
Ohio would be less onerous than litigating in New Jersey.1   
{¶ 12} Although it does not appear in this case that enforcing the floating 
forum clause would deprive any appellant of its day in court, we hold that the 
clause is unreasonable because even a careful reading of the clause by a signatory 
would not answer the question of where he may be forced to defend or assert his 
contractual rights.  At the time the contract was entered into, the appropriate 
forum would have been New Jersey; the very next day, in most cases, the lease 
was assigned to Preferred Capital and the appropriate forum became Ohio.  
Nothing prevented Preferred Capital from assigning its interest and changing the 
forum yet again.  It is one thing for a contract to include a waiver of personal 
jurisdiction and an agreement to litigate in a foreign jurisdiction.  It is quite 
another to contract to litigate the same contract in any number of different 
jurisdictions, located virtually anywhere.  Nothing in the record indicates that 
                                                 
1.  For example, appellant Home Furnishings of Clarkston is a Michigan corporation.   
SUPREME COURT OF OHIO 
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appellants were fully apprised of the potential for a truly floating forum.  The 
record indicates that NorVergence knew that it intended to assign these leases and 
that no matter how carefully appellants read the contract, they could never have 
anticipated the appropriate forum for litigating issues relating to their leases. 
{¶ 13} Preferred Capital and NorVergence had superior information.  
Before the leases were signed, NorVergence had entered into the Master Program 
Agreement with Preferred Capital.  NorVergence knew that it would likely assign 
its interest in appellants’ leases to Preferred Capital or some other entity, but 
withheld that information from appellants. 
{¶ 14} Presumably, Preferred Capital reviewed the leases before it 
accepted assignment.  Preferred Capital was in a better position than appellants to 
evaluate the risk and costs of litigating in a foreign jurisdiction.  Based upon the 
strong public policy of not haling individuals into foreign jurisdictions without 
their knowing waiver, and the superior knowledge and position of NorVergence 
and Preferred Capital in comparison to appellants, we hold this forum-selection 
clause unreasonable, and it would be unjust to enforce it. 
{¶ 15} In a contract between two commercial entities, a forum-selection 
clause with no reference to a specific jurisdiction or jurisdictions is valid absent a 
finding of fraud or overreaching or a finding that enforcement of the clause would 
be unreasonable and unjust. A forum-selection clause may be held to be 
unreasonable if it would be against public policy to enforce it. 
{¶ 16} We hold that when one party to a contract containing a floating 
forum-selection clause possesses undisclosed information of its intent to assign its 
interest in the contract almost immediately to a company in a foreign jurisdiction, 
the forum-selection clause is unreasonable and against public policy absent a clear 
showing that the second party knowingly waived personal jurisdiction and 
assented to litigate in any forum.  The judgment of the court of appeals is 
reversed. 
January Term, 2007 
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Judgment reversed. 
 
BOGGINS, O’CONNOR and O’DONNELL, JJ., concur. 
 
PFEIFER, J., concurs in judgment only. 
 
LUNDBERG STRATTON and LANZINGER, JJ., dissent. 
 
JOHN F. BOGGINS, J., of the Fifth Appellate District, was assigned to sit for 
RESNICK, J., whose term ended on January 1, 2007. 
 
CUPP, J., whose term began on January 2, 2007, did not participate in the 
consideration or decision of this case. 
__________________ 
 
LUNDBERG STRATTON, J., dissenting.  
{¶ 17} Because the majority fails to cite any sound public policy 
disfavoring the floating forum-selection clause at issue in this case, I respectfully 
dissent.  The majority concluded that there was no fraud or overreaching by 
NorVergence.  The majority held that there was no evidence that enforcing the 
floating forum-selection clause would deprive any appellant of its day in court.  
Yet the majority goes on to hold that the forum-selection clause is unreasonable 
and against public policy simply because at the time they entered the contract, 
appellants did not know exactly where they might have to litigate their contract.  
Nonetheless, that is exactly the agreement the parties made.  I see no sound 
public-policy reason to void the forum-selection clause agreed to by these 
commercial entities, when there was no fraud or overreaching and the parties 
were on notice that the contract contained a floating forum-selection clause. 
{¶ 18} The contract provision in contention in this case provides:  “This 
agreement shall be governed by * * * the laws of the State in which Rentor’s 
principal offices are located or, if this Lease is assigned by Rentor, the State in 
which the assignees’ principal offices are located * * * and all legal action 
relating to this Lease shall be venued exclusively in a state or federal court located 
within that State * * *.”  The majority notes that this language was clear and was 
SUPREME COURT OF OHIO 
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legibly printed on the second page of the two-page contract.  There was no effort 
to conceal the clause.  In fact, the majority notes that printed in large type and in 
all capital letters directly above the signature line of the guaranty on the front 
page of each contract is the sentence “You agree to jurisdiction and venue as 
stated in the paragraph titled Applicable Law of the rental [agreement].” 
{¶ 19} In Kennecorp Mtge. Brokers, Inc. v. Country Club Convalescent 
Hosp., Inc. (1993), 66 Ohio St.3d 173, 610 N.E.2d 987, syllabus, this court held, 
“Absent evidence of fraud or overreaching, a forum selection clause contained in 
a commercial contract between business entities is valid and enforceable, unless it 
can be clearly shown that enforcement of the clause would be unreasonable and 
unjust.” 
{¶ 20} The majority concedes that appellants were aware of the possibility 
that their contract could be assigned and that, due to the floating forum-selection 
clause, an assignment could change the forum for litigation.  Yet the majority 
concludes that NorVergence withheld from appellants that it likely would assign 
its interests in appellants’ leases to Preferred Capital or some other entity.  There 
is absolutely no evidence of this, and even if there were, it is wholly irrelevant 
whether NorVergence intended to assign its interest in appellants’ leases to 
another entity, because they were explicitly permitted to do so in the contract. 
{¶ 21} When the leases were signed, NorVergence’s principal office was 
in New Jersey.  Later, NorVergence assigned its interest in these lease agreements 
to Preferred Capital, whose principal offices are in Ohio.  Whether NorVergence 
assigned these documents one day later or ten weeks later should make no 
difference; the appellants clearly knew they were assignable. 
{¶ 22} There is no evidence that when they signed the contract, appellants 
were concerned about where the contract could be litigated.  They assented to the 
terms of the agreement, which specify that in the event of an assignment, the 
January Term, 2007 
9 
exclusive forum for litigation could be in any state in which a future assignee’s 
principal offices are located.  There is no evidence that appellants made any 
inquiry into or objection to the forum-selection clause.  Appellants knew that 
under the terms of the contract, if NorVergence did not assign its interest, the 
proper place to litigate disputes would be New Jersey.  As the majority concedes, 
it is no more unjust or unreasonable for appellants to defend themselves in Ohio 
than in New Jersey, as none has offices in either state. 
{¶ 23} I would adopt the reasoning of the United States Court of Appeals 
for the Seventh Circuit in IFC Credit Corp. v. Aliano Bros. Gen. Contrs., Inc. 
(C.A.7, 2006), 437 F.3d 606, which, in considering an identical forum-selection 
clause, held that there should not have been a forum-selection dispute in that case 
because “the forum selection clause designates the state of suit unequivocally: it is 
the headquarters state of either NorVergence or, if the contact has been assigned, 
of the assignee.” Id. at 612. 
{¶ 24} Even though the contract unequivocally permitted the action taken 
by NorVergence, the majority concludes that it is against public policy to enforce 
this forum-selection clause.  I disagree.  The majority acknowledges that there is a 
valid business reason for including a floating forum-selection provision.  Such a 
clause is a reflection of the realities of the modern-day leasing industry, where 
negotiable paper involving equipment leasing is bought and sold with regularity.  
This reality favors a clause that permits an assignee to bring suit in its home 
forum, thereby enhancing the marketability of the lease.  “Parties to contracts are 
not benefited by rules that make assignment burdensome.  If assignors have to 
compensate their assignees for having to litigate in an inconvenient forum, they 
will have to charge a higher price to their customers * * *.”  Aliano, 437 F.3d at 
612-613. 
{¶ 25} The majority also rejects the argument that the parties were 
unequal bargainers.  Both parties to each contract were commercial entities 
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negotiating a commercial contract.  As in Kennecorp, we are dealing with 
sophisticated commercial parties, and “in the light of present-day commercial 
realities, it has been stated that a forum selection clause in a commercial contract 
should control, absent a strong showing that it should be set aside.”  Kennecorp, 
66 Ohio St.3d at 175, 610 N.E.2d 987, citing The Bremen v. Zapata Off-Shore Co. 
(1972), 407 U.S. 1, 15, 92 S.Ct. 1907, 32 L.Ed.2d 513. 
{¶ 26} The majority’s sole basis for setting this floating forum-selection 
clause aside is that appellants could not have known exactly where they might 
have to litigate the contract.  Such a holding invalidates all floating forum-
selection clauses, for that is their very essence; the forum may change.  That is 
part of the bargain agreed to by the parties. 
{¶ 27} The majority states that public policy is against “haling individuals 
into foreign jurisdictions without their knowing waiver.”  This is true; however, 
there was clearly a knowing waiver by appellants in this case.  The majority found 
that (1) the parties to this contact were commercial entities, (2) there was no fraud 
or overreaching, (3) the contract language was plain, and (4) there are legitimate 
business reasons for including a floating forum-selection clause in agreements of 
this sort.  In my view, it is against public policy to hold a forum-selection clause 
invalid when the parties have knowingly agreed to it. 
{¶ 28} The majority opinion seems to hold that a floating forum-selection 
clause is unreasonable if the final assignee is not declared up front.  But whether 
commercial paper will be sold and to whom is often not known at the time of the 
initial transaction.  The marketability of commercial paper is dependent on 
financial institutions being able to sell commercial paper freely.  The majority’s 
decision makes no sense in the modern market and will seriously undermine 
countless contracts with floating forum-selection clauses that have been entered 
into in Ohio and will reduce the value of commercial paper with such clauses that 
have been purchased by Ohio institutions. 
January Term, 2007 
11 
{¶ 29} Because I believe that the public-policy reason given by the 
majority is not supported by either the facts of this case or by the reality of 
modern commercial business practices and because I see no reason for setting this 
forum-selection clause aside, I respectfully dissent. 
LANZINGER, J., concurs in the foregoing opinion. 
__________________ 
Roderick Linton, L.L.P., Tamara A. O’Brien, T. Anthony Mazzola, and 
Jason E. Hickman, for appellee. 
Mark S. Shearer, for appellants PAC Heating, Inc., Hambergs Dr. BM 
Tru-Site Optical Co., and Donn C. Lamon, d.b.a. Lamon Associates. 
Sutter, O’Connell & Farchione, Matthew C. O’Connell, and Victoria 
Barto, for appellants Houston Chapter Association General Contractors of 
America, Inc., and Tiny’s Tire Center, Inc. 
Julius P. Amourgis for appellant Pro Temps, Inc. 
Gary Brown, for appellant Doug Johnson & Associates, Inc. 
Oldham & Dowling and Hamilton DeSaussure Jr., for appellants Rick 
Hore and Location Real Estate. 
Gregory Glick, L.L.C., and Gregory Glick for appellants Plyley 
Enterprises, Inc., and Custom Data Solutions, Inc. 
Roetzel & Andress, Bradley A. Wright, and Jerome G. Wyss, for appellant 
Home Furnishings of Clarkston, Inc. 
Dykema Gossett, P.L.L.C., Edward A. Groobert, and Jill M. Wheaton, for 
amicus curiae Equipment Leasing Association of America, Inc., in support of 
appellee. 
Coley & Associates Co., L.P.A., and William P. Coley II, for amicus 
curiae National City Commercial Capital Corporation, in support of appellee. 
Tom Reilly, Attorney General of Massachusetts, and Scott D. Schafer and 
Geoffrey G. Why, Assistant Attorneys General, for amici curiae Attorneys 
SUPREME COURT OF OHIO 
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General for the states of Arizona, California, Connecticut, Illinois, Iowa, 
Maryland, New York, Ohio, Pennsylvania, Rhode Island, and Massachusetts, in 
support of appellants. 
Fiehrer & Lane, L.P.A., and Stephen C. Lane, for amici curiae A & B 
Express USA, Inc., et al., in support of appellants. 
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