Forum Selection Clauses: Commercial Division Issues Reminder That Choice of Venue Must Be Designated with Specificity
Forum selection clauses are a common feature of commercial arrangements, allowing contracting parties to opt out of default procedural rules and determine ex ante which state will have jurisdiction over any future dispute arising from the agreement and even the particular venue where that dispute must be resolved. But as parties are often reminded, opting out of these default principles—whether jurisdiction or venue, or both—requires clarity and specificity.
One recent Commercial Division decision from Albany County, Meritage Hospitality Group, Inc. v North Am. Elite Ins. Co., confronted an interesting variation of this principle: where a commercial agreement clearly specifies the parties’ choice of jurisdiction, but remains silent as to the particular venue, does the agreement nonetheless give a litigant carte blanche to override the default venue provisions of N.Y. CPLR § 503 and file suit in any court as long as it falls within the chosen jurisdiction? Predictably, Justice Richard M. Platkin answered no and, in the process, issued a useful reminder about the manner in which procedural opt-outs must be drafted.
Meritage Hospitality concerns a dispute arising from an all-risk commercial insurance policy, in effect from December 31, 2019 to December 31, 2020. The policy holder, Meritage Hospitality Group, a Michigan corporation headquartered in Grand Rapids, Michigan, owns and operates 346 restaurants in 16 states, although none in New York. The insurer, North American Elite Insurance Company (“NAE”), is a New Hampshire entity with its principal place of business in New York County.
In March 2020, Meritage submitted a claim for business interruption coverage based on lost income from disruption caused by the COVID-19 pandemic and the resulting public health restrictions. A dispute arose as to the precise scope of coverage under the policy and, on March 12, 2021, Meritage filed a complaint against NAE in Albany County asserting claims of breach of contract and unjust enrichment.
Although the parties agreed that jurisdiction in New York was appropriate, NAE quickly challenged venue and filed a motion seeking to transfer the case to New York County, where it had its principal place of business. Under N.Y. CPLR § 503, the default venue rule provides that “the place of trial shall be in the county in which one of the parties resided when it was commenced” or “the county in which a substantial part of the events or omissions giving rise to the claim occurred.” Applying that rule, NAE argued that transfer was warranted because neither party resided in Albany County, no portion of the claims arose from Albany County, and the only New York-based party resided in New York County.
Meritage, however, opposed transfer and attempted to justify its choice of venue by pointing to a forum selection clause in the policy, which stated 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.” Meritage reasoned that, because the Albany County Commercial Division is a “Court of the State of New York,” venue was proper.
The Court’s Decision
The issue before the Court was whether the policy’s forum selection clause, which specified “exclusive jurisdiction of the Courts of the State of New York,” permitted Meritage to override the default venue rules of N.Y. CPLR § 503 and file suit in Albany County, where neither party resided. The Court ruled that it did not.
The Court recognized that, under N.Y. CPLR § 501, 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.” However, with respect to the policy at issue, the Court observed that the clause cited by Meritage “speaks only to ‘jurisdiction’ and says nothing about ‘venue’ or ‘the place of trial.’” The Court went on to remind the parties that jurisdiction and venue are “separate and distinct concepts”: “[j]urisdiction 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.” For that reason, the Court concluded that the policy did not do away with the requirements of N.Y. CPLR § 503.
In urging otherwise, Meritage pointed to a line of cases it claimed had reached the opposite conclusion. However, the Court distinguished those decisions by noting that the contracts at issue contained language explicitly “waiving any claim that venue is improper.” By contrast, the Court observed that the policy language before it “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.” For that reason, the Court granted NAE’s motion to transfer venue.
Meritage Hospitality provides a useful reminder to New York practitioners that, to be effective, forum selection clauses must state with specificity the jurisdiction and venue to be used in resolving any dispute—or alternatively, contain an express waiver of the right to challenge any future choice of jurisdiction or venue. However, a mere designation of a particular jurisdiction will not confer carte blanche to choose any venue a party desires.