Wednesday, October 27, 2010

Choice of Forum Clauses: Judge Chasanow’s October 18th Opinion in Ruifrok v. White Glove Restaurant Services, LLC

On October 18, 2010, Judge Deborah K. Chasanow issued an opinion on a motion to remand to state court a civil action removed to the Federal District of Maryland.  Ruifrok v. White Glove Restaurant Servs., LLC, 2010 U.S. Dist. LEXIS 110369 (D. Md. Oct. 18, 2010), available here.  The opinion, as well as an earlier Ninth Circuit opinion to which it makes reference (Kamm v. Itex Corp., 568 F.3d 752 (9th Cir. 2009)), underscore in drafting employment agreements and severance / settlement agreements, that the language of the choice of forum clause can be dispositive as to whether the controversy can be removed to federal court or not.  Additionally, Kamm teaches us that motions to remand predicated on a choice of forum clause are not covered by the “defect” exception in 28 U.S.C. § 1447(d), and thus the 30-day rule does not apply to such motions to remand. 

Drafting Forum Selection Clauses

In Ruifrok, the language of the forum selection clause read as follows:

This Agreement and the parties’ performance hereunder shall be governed by and interpreted under the laws of the State of Maryland.  Employee agrees to submit to the jurisdiction of the courts of the State of Maryland, and that venue for any action arising out of this Agreement or the parties’ performance hereunder, shall be in the Circuit Court for the County of Montgomery, Maryland.

In Ruifrok, the court was called upon to decide whether that language necessitated a remand of the case to state court.  Judge Chasanow looked at cases containing forum selection clauses that applied to all claims arising from or relating to “the employment relationship” and cases where courts had found that a statutory wage claim was not a matter “relating to the agreement” and therefore not encompassed by the forum selection clause.  She contrasted those cases with the matter before her, finding that the language in the instant case applied not only to actions arising “out of this agreement,” but also to those arising from “the parties’ performance hereunder.”  She found that the latter clause encompassed statutory wage claims under the FLSA and the Maryland Wage Payment and Collection Law, as resolution of issues under those statutes would require careful scrutiny of the employment agreement to determine the nature and scope of the plaintiff’s job duties, and the method by which he was compensated.  In short, she held that plaintiff’s claims related to defendants’ performance, or non-performance, under the agreement, and thus were encompassed by the forum selection clause.

Judge Chasanow found that a forum selection clause constitutes a waiver of the right of removal to federal court; that forum selection clauses are presumptively enforceable; and that the clause at issue was mandatory, not permissive.  Her finding that the clause was mandatory was based upon the clause’s use of the phrase “shall be” rather than permissive language.

The opinion also discusses tort claims, finding that they could not be adjudicated without analyzing whether the parties were in compliance with the underlying agreement, and thus were governed by the forum selection clause.  Judge Chasanow also noted that the agreement had been drafted by defendants, and thus she stated that they could have specifically reserved a right to remove the action to federal court.

The opinion contains a brief discussion of the exceptions to the presumption of enforceability of a forum selection clause, which are: 

“(1) their formation was induced by fraud or overreaching; (2) the complaining party "will for all practical purposes be deprived of his day in court" because of the grave inconvenience or unfairness of the selected forum; (3) the fundamental unfairness of the chosen law may deprive the plaintiff of a remedy; or (4) their enforcement would contravene a strong public policy of the forum state.”  Allen v. Lloyd's of London, 94 F.3d 923, 928 (citing Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595 (1991); Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12-13, 15, 18 (1972)).

Defendants argued that enforcement of the clause would be unreasonable because two individual defendants were not signatories to the employment agreement.  Judge Chasanow had no difficulty with this argument, finding that removal is only permissible if all of the defendants consent to removal, and the company had waived its right to removal by virtue of the forum selection clause, and therefore could not consent to removal.  Additionally, she pointed out that it is well-established that non-signatories to an agreement are nevertheless “covered by choice of forum clauses so long as their alleged conduct is ‘closely related to the contract in question.’”  The individuals were being sued under the FLSA and Maryland Wage Payment and Collection Law as “employers” within the meaning of those statutes, and therefore the claims against them were “closely related” to the contract at issue.

So, in terms of takeaways, if anything, the opinion underscores the importance of carefully drafting the forum selection clause either to prevent removal or assure that the option is preserved. 

Procedure

While the motion to remand in Ruifrok was filed within 30 days of removal, Judge Chasanow’s citation of the Kamm case led me there, and it is worthwhile to share with our readers the holding in Kamm, which is consistent with the holdings of all other circuits that have addressed the issue.  Some fairly arcane history is a necessary predicate to understanding the issue. 

Prior to 1996, the removal statute (28 U.S.C. §1447(c)) provided:  A motion to remand on the basis of any defect in removal procedure must be made within 30 days after the filing of the notice of removal under § 1446(a).  If at any time before final judgment it appears the district court lacks subject matter jurisdiction, the case can be remanded.

Prior to 1996, the courts had held that the 30 day requirement of §1447(c) did not apply to motions to remand based on forum selection clauses.

In 1996, the statute was amended to delete the phrase “any defect in removal procedure” and substitute simply “any defect.”  The argument was then made that the “any defect” language encompassed a motion to remand based on a forum selection clause.  Prior to Kamm, the Tenth, Seventh, First, and Eleventh circuits had rejected that argument, finding that motions to remand based on a forum selection clause are not governed by the 30 day rule.  The Kamm court agreed, finding that the “any defect” language had been substituted for the prior language to cover motions to remand based on non-procedural statutory requirements for removal such as the forum defendant rule (don’t let those words confuse you—they have no relevance to a forum selection clause).  Thus, the motion to remand based on a forum selection clause, like the motion that was successful in Ruifrok, need not necessarily be filed within 30 days, but rather, must be filed within a reasonable timeframe.  The Kamm court was clearly uncomfortable with this result, stating, “there are good policy reasons to impose a statutory time limit on a motion to remand based on a forum selection clause, whether that limit be thirty days or some other period.”  Having expressed its displeasure, the Kamm court noted that that is a task for Congress, and not the court, and thus it affirmed the district court’s order remanding that case to state court. 

So, the takeaway from Kamm would seem to be that best practice, as was the case in Ruifrok, is to file your motion to remand within 30 days even though not required to do so, and in any event, to file within a reasonable time after notice of removal.


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