Court Opinion

ID: 163866
Source: CourtListenerOpinion
Date Created: 2010-08-14 08:06:13+00
Date Added: 2024-06-11T17:17:19.205847
License: Public Domain

F I L E D
                                                                   United States Court of Appeals
                                                                           Tenth Circuit
                     UNITED STATES COURT OF APPEALS
                                                                           SEP 10 2003
                            FOR THE TENTH CIRCUIT
                                                                      PATRICK FISHER
                                                                               Clerk

    MICHAEL J. KING,

                Plaintiff-Appellant,

    v.                                                  No. 02-1560
                                                 (D.C. No. 02-B-1874 (BNB))
    PA CONSULTING GROUP, INC.,                            (D. Colo.)
    a New Jersey Corporation,

                Defendant-Appellee.

                            ORDER AND JUDGMENT            *

Before EBEL , PORFILIO , and McCONNELL , Circuit Judges.

         After examining the briefs and appellate record, this panel has determined

unanimously to grant the parties’ request for a decision on the briefs without oral

argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore

ordered submitted without oral argument.

*
      This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
      Plaintiff Michael J. King appeals from a district court order dismissing his

action for a declaration of contract rights without prejudice in favor of an action

for breach of the same contract currently prosecuted by defendant PA Consulting

Group in New Jersey. Following circuit precedent decided after the district court

ruled here, we hold that its otherwise discretionary ruling regarding venue was

premised on an erroneous legal characterization of a provision in the parties’

contract. We therefore vacate the dismissal order and remand the case for the

district court to exercise its discretion anew on the basis of a proper construction

of this pivotal contract provision.

      In the summer of 2002, plaintiff notified PA that he planned to leave its

employ and hire on with a rival. PA insisted this would violate non-compete

provisions in his contract. Plaintiff claimed the provisions were unenforceable.

While the parties were attempting to negotiate their differences, plaintiff filed the

instant declaratory judgment action seeking to void the disputed provisions. He

did not, however, serve the complaint on PA. Consequently, when the parties’

negotiations broke down shortly thereafter, PA filed a breach of contract suit in

New Jersey state court pursuant to section 17.2 of the contract:

      This agreement and all matters arising in connection with it shall be
      governed by the law of the State of New Jersey and shall be subject
      to the jurisdiction of the New Jersey Courts.

Aplt. App. at 20.

                                          -2-
       Plaintiff then immediately served the pleadings in his declaratory judgment

action on PA, which moved in the alternative to dismiss for improper venue under

28 U.S.C. § 1406(a) or to transfer the action to New Jersey on forum-convenience

grounds under 28 U.S.C. § 1404(a), contending the quoted provision effected a

mandatory selection of New Jersey as the exclusive forum for resolving contract

disputes. Plaintiff opposed PA’s motion, insisting the provision merely permitted

but did not require venue in New Jersey and that the factors pertinent to § 1404(a)

showed that Colorado was the more appropriate forum. In the meantime, PA’s

New Jersey action for breach of contract was removed to federal court.

       The district court agreed with PA that the disputed provision constituted a

mandatory forum-selection clause, and then weighed the considerations relevant

to § 1404(a) in light of that legal conclusion. Following   Stewart Organization,

Inc. v. Ricoh Corp. , 487 U.S. 22, 29 (1988), the district court held that the clause

did not override or obviate the § 1404(a) inquiry, but did play a central role in

weighting and balancing the many factors in the convenience calculus.      Accord

Kerobo v. S.W. Clean Fuels Corp.     , 285 F.3d 531, 536-39 (6 th Cir. 2002); Jumara

v. State Farm Ins. Co. , 55 F.3d 873, 880 (3d Cir. 1995). In the end, the district

court relied heavily on its mandatory characterization of the forum-selection

clause to conclude that the balance tipped in favor of PA’s New Jersey suit.

                                            -3-
       While the district court’s reasoning is explicit and straightforward, there is,

strictly speaking, a disjunction between its reasoning and its formal disposition of

the case, which has prompted a dispute between the parties regarding our standard

of review. As noted above, upon determining that the quoted provision was a

mandatory forum-selection clause, the court did not immediately and peremptorily

dismiss this action under § 1406(a); rather, following the Supreme Court’s lead in

Stewart , it proceeded to analyze the relative convenience of the venue-of-filing

versus the venue-of-contract pursuant to § 1404(a). However, after deciding that

the venue-of-filing should give way, it did not transfer the action to the federal

court presiding over the rival New Jersey suit, which would have been in accord

with the exclusive remedy provided for in § 1404(a),       see generally 17 James Wm.

Moore, Moore’s Federal Practice        § 111.19, at 111-131 & nn.1, 2 (3d ed. 2003)

(citing Am. Dredging Co. v. Miller , 510 U.S. 443, 449 n.2 (1994), and       Norwood v.

Kirkpatrick , 349 U.S. 29, 32 (1955));    Headrick v. Atchison, T. & S.F. Ry. Co.   ,

182 F.2d 305, 308 (10 th Cir. 1950). Instead, it “ordered that: Defendant’s motion

to dismiss pursuant to 28 U.S.C. § 1406(a) and Fed. R. Civ. P. 12(b)(3) is granted

without prejudice.” Aplt. App. at 319 (typeface altered).

       Plaintiff seizes upon the reference to dismissal under § 1406(a) to invoke

the de novo review generally accorded determinations of improper venue under

that statute.   First of Mich. Corp. v. Bramlet    , 141 F.3d 260, 262 (6 th Cir. 1998);

                                             -4-
see also Pierce v. Shorty Small’s of Branson, Inc.    , 137 F.3d 1190, 1191 (10 th Cir.

1998). Defendant, in contrast, points to the substance of the court’s preceding

analysis under Stewart and § 1404(a) to invoke the deferential abuse-of-discretion

standard generally applied to assessments of convenience under that statute.         1
                                                                                         See

Scheidt v. Klein , 956 F.2d 963, 965 (10 th Cir. 1992). For purposes of the pivotal

issue on which our disposition of the appeal turns, this dispute is inconsequential.

Whether the contract effects a mandatory or permissive forum designation is an

issue of law reviewed de novo, even if it arises in connection with a discretionary

assessment of convenience under § 1404(a).         See Jumara , 55 F.3d at 880-81;       see

also Milk ‘N’ More, Inc. v. Beavert     , 963 F.2d 1342, 1345 (10 th Cir. 1992). And

an error on this legal issue would necessarily undermine the district court’s

resultant exercise of discretion.     See Hartsel v. Springs Ranch of Colo., Inc. v.

Bluegreen Corp., 296 F.3d 982, 987 (10 th Cir. 2002).

1
       Another, related consideration driving the parties’ opposing positions has to
do with the proper characterization of our review authority: plaintiff relies on the
formal order of dismissal to underwrite our appellate jurisdiction under traditional
principles of finality; defendant argues that under § 1404(a) the order should have
been–and, more importantly, should now be deemed–an interlocutory transfer
challengeable only through mandamus. On this jurisdictional point, we agree
with plaintiff that the express terms of the court’s order control, as we “decline to
recast the relevant procedural events after the fact in such a way as to cut off
appeal rights.” United States v. Bly , 328 F.3d 1262, 1263 n.1 (10 th Cir. 2003).
Of course, that is not to say dismissal was the  correct disposition of the case; the
authorities cited above indicate that the courses open to the district court here
under § 1404(a) were limited to transfer or retention of the case.

                                             -5-
       We come to the dispositive issue: did the parties’s contract effect a

mandatory, exclusive designation of venue in New Jersey? The contract did not

refer to venue. To be sure, the parties agreed to submit to jurisdiction in New

Jersey and to resolve their disputes by reference to New Jersey law. But a

mandatory designation of venue is not effected by either of these stipulations. It

confuses substance with procedure to conflate choice-of-law provisions with

forum-selection clauses.     See Hugel v. Corp. of Lloyd’s , 999 F.2d 206, 210 (7 th

Cir. 1993); see also Apex Plumbing Supply, Inc. v. U.S. Supply Co.       , 142 F.3d 188,

191 (4 th Cir. 1998) (noting choice-of-law provision “in no way designated any

one court as the exclusive forum” in which the chosen law would be applied).

Jurisdiction and venue, in contrast, do share a basic focus on the location of

litigation and, indeed, a clause specifying a forum for jurisdiction may mandate

that forum for purposes of venue as well, if it “contains clear language showing

that jurisdiction is appropriate    only in the designated forum.”   Excell, Inc. v.

Sterling Boiler & Mech., Inc.      , 106 F.3d 318, 321 (10 th Cir. 1997) (quotation

omitted and emphasis added). There is no such clear language of exclusivity in

the provision under review.

       It is true that the provision uses the legally freighted term “shall” in

connection with the parties’ submission to New Jersey jurisdiction. But, as a

number of courts dealing with similar provisions have carefully explained, the

                                             -6-
plain meaning of the term here indicates that the jurisdictional burden assumed is

obligatory , not that it is exclusive . In Hunt Wesson Foods, Inc. v. Supreme Oil

Co. , 817 F.2d 75, 76 (9 th Cir. 1987), the court considered a clause reciting that

“[t]he courts of California, County of Orange, shall have jurisdiction over the

parties in any action relating to . . . this contract.” The court held this language

did not mandate a California venue because the submission to jurisdiction, though

certainly binding (California jurisdiction could not be denied), was not exclusive

(jurisdiction outside California had not been renounced):

      Here, the plain meaning of the language is that the Orange County
      courts shall have jurisdiction over this action. The language says
      nothing about the Orange County courts having exclusive
      jurisdiction. The effect of the language is merely that the parties
      consent to the jurisdiction of the Orange County courts.

Id. at 77. The court’s discussion of the mandatory but nonexclusive import of the

term “shall” is particularly relevant here:

      Although the word ‘shall’ is a mandatory term, here it mandates
      nothing more than that the Orange County courts have jurisdiction.
      Thus, [the defendant] cannot object to litigation in the Orange
      County Superior Court on the ground that the court lacks personal
      jurisdiction. Such consent to jurisdiction, however, does not mean
      that the same subject matter cannot be litigated in any other court. In
      other words, the forum selection clause in this case is permissive
      rather than mandatory.

             In comparison, in cases in which forum selection clauses have
      been held to require litigation in a particular court, the language of
      the clauses clearly required exclusive jurisdiction. . . . In [such]
      cases it is clear that the language mandates more than that a
      particular court has jurisdiction. The language mandates that the

                                          -7-
       designated courts are the only ones which have jurisdiction. Here the
       language clearly falls short of designating an exclusive forum.

Id. at 77-78. The Ninth Circuit reaffirmed        Hunt Wesson in Northern California

District Council of Laborers v. Pittsburg-Des Moines Steel Co.         , 69 F.3d 1034,

1036-37 (9 th Cir. 1995); the Fifth Circuit expressly adopted its analysis in       Caldas

& Sons, Inc. v. Willingham        , 17 F.3d 123, 127-28 (5 th Cir. 1994); and just last year

this circuit specifically cited     Hunt Wesson to illustrate the prevailing approach to

forum-selection clauses it was embracing in          K & V Scientific Co. v. BMW   , 314

F.3d 494, 499 (10 th Cir. 2002).      2

       In holding that the provision here constituted a mandatory forum-selection

clause notwithstanding these considerations, the district court relied on a decision

from the federal district court in New Mexico, which held that a clause specifying

jurisdiction in Munich, Germany effected a mandatory designation of venue

because it included choice-of-law language making German law controlling.                See

K & V Scientific Co. v. BMW         , 164 F. Supp. 2d 1260, 1270-71 (D. N.M. 2001).

2
       We emphasize that the issue here is whether a recognition-of-jurisdiction
provision implies an exclusive selection of venue. Use of mandatory language
like “shall” in a clause dealing   directly with venue carries stronger implications
regarding the intent to designate an exclusive forum.     See Milk ‘N’ More , 963
F.2d at 1346 (holding clause stating that “venue shall be proper . . . in” effected
an exclusive designation of forum). When, as here, the relation of such language
to the question of venue is at most derivative, through a jurisdictional provision,
decisions such as “ Milk ‘N’ More . . . are of little assistance in resolving the . . .
dispute.” K & V Scientific , 314 F.3d at 498-99.

                                               -8-
Shortly after the district court’s ruling, however, this court reversed the decision

from the district of New Mexico–indeed, the panel “ha[d] little trouble concluding

that the forum selection clause at issue is permissive”–in an opinion we have

already referred to above.   K & V Scientific , 314 F.3d at 500. More specifically,

this court rejected the idea that submission-to-jurisdiction plus choice-of-law

equals mandatory designation-of-venue, holding that “the parties’ choice of law

provision (even assuming that it is binding and controls all of plaintiff’s claims)

appears to carry little, if any, weight in determining whether the parties’ forum

selection clause was intended as mandatory or permissive.”      Id. at 501. We also

note that K & V Scientific cited with evident approval two decisions (the    Hunt

Wesson case discussed above and     Keaty v. Freeport Indonesia, Inc.   , 503 F.2d

955, 956-57 (5 th Cir. 1974)) which the district court here specifically discounted

as inconsistent with what it took to be the controlling analysis in the circuit.

Compare K & V Scientific     at 499 with Aplt. App. at 316.

       For the foregoing reasons, we hold that the provision under consideration

effected only a permissive selection of venue in New Jersey. Because the district

court’s legal characterization of the provision as mandatory played such a central

role in its forum-convenience analysis under § 1404(a), its decision to dismiss

cannot stand on its stated rationale (thus, it was necessarily erroneous to hold that

the provision made venue not just inconvenient under § 1404(a) but improper

                                          -9-
under § 1406(a)). Because the assessment of forum convenience is reserved to

the discretion and case-specific judgment of the district court,    see Stewart , 487

U.S. at 29, our ability to affirm here by undertaking our own re-assessment of the

matter (in light of the proper understanding of the forum-selection clause as

permissive) is greatly circumscribed. Such an affirmance could be premised only

on the conclusion that “it would have been an abuse of discretion for the trial

court to rule otherwise.”   Ashby v. McKenna , 331 F.3d 1148, 1151 (10 th Cir.

2003) (discussing when appellate court can rely on different reasoning to affirm

decision committed to discretion of district court) (quotation omitted). There are

many procedural, practical, and fact-intensive considerations to be weighed in the

balance, see Chrysler Credit Corp. v. Country Chrysler        , Inc., 928 F.2d 1509, 1516

(10 th Cir. 1991), and the legal clarification of the forum-selection clause as

permissive may affect these in ways which are difficult if not impossible for an

appellate court in the first instance to frame and evaluate, as it must, in terms

“sufficient to permit conclusions of law.”     Ashby , 331 F.3d at 1151 (quotation

omitted). At this stage,

       we cannot say the only legally permissible exercise of [§ 1404(a)]
       discretion would be to [transfer] the case, though it is not for us to
       gainsay that result either. Hence, we must allow the district court to
       exercise its discretion anew in light of the changed legal
       circumstances clarified by this opinion.

Id. at 1151 (quotation omitted).

                                             -10-
      We are aware of the district court’s comment that “[i]f the mandatory

selection clause did not exist, the balance of the factors would weigh in favor of

Plaintiff [i.e., of retaining the case in Colorado].” Aplt. App. at 319. This does

not persuade us that it would be appropriate to preemptively order the court to

resolve the § 1404(a) question in favor of retention. First of all, the comment is

dictum and we are hesitant to speculate about whether the district court would

legally commit to, or perhaps reconsider, views it previously expressed in a

non-binding manner. Morever, the counterfactual premise of the dictum is       still

counter to the facts: the force of the forum-selection clause has been reduced,

from prescriptive designation to permissive recognition of New Jersey venue, but

the clause has not disappeared . See generally 17 Moore’s Federal Practice,

§ 111.13[1][p][C] (noting that even permissive forum-selection clauses are given

consideration in the § 1404(a) convenience calculus). Finally, there appear to be

other relevant considerations which the district court has not yet addressed and

which it may see as especially significant now that the forum-selection clause no

longer figures so prominently.   3

3
       For example, defendant contends on the basis of numerous authorities that
the relatively favorable position plaintiff secured by being the first to file could
be undercut if the district court were to find that plaintiff rushed to the courthouse
with this anticipatory declaratory judgment action while maintaining a negotiating
stance designed to lull defendant into delaying its own affirmative suit for breach
of contract.

                                         -11-
      Accordingly, informed by this court’s recent decision in    K & V Scientific ,

we vacate the district court’s ruling on venue and remand for reconsideration in

light of our holding that the parties’ contractual references to New Jersey law and

New Jersey jurisdiction effected only a permissive forum selection. Should the

district court again decide that these proceedings must give way to those pending

in the district of New Jersey, it should dispose of the case by transfer rather than

by dismissal.

      The district court’s judgment is VACATED and the cause is REMANDED

for further proceedings consistent with the principles stated herein. The parties’

pending motions regarding judicial notice are DENIED.      4

                                                      Entered for the Court

                                                      John C. Porfilio
                                                      Circuit Judge

4
       The parties ask us to take judicial notice of many legal documents from the
New Jersey case. These are irrelevant to our basis for disposition of this appeal.
Of course, our denial of the parties’ requests is without prejudice to presentation
of the materials to the district court on remand.

                                          -12-