Friday, February 15, 2013

When Do Forum Selection Clauses Preclude Federal Forum? A Split in the Fourth Circuit

In Ruifrok v. White Glove Rest. Servs., LLC, No. DKC 10-2111, 2010 U.S. Dist. LEXIS 110369 (D. Md. Oct. 18, 2010), Judge Chasanow issued a detailed decision in which he found that, while a forum selection clause specifying a state-court forum does not divest a federal court of jurisdiction, as a prudential matter, federal courts “should give effect to a valid and enforceable forum-selection clause” and remanded the otherwise properly removed case to state court.  See Robert B. Fitzpatrick, Choice of Forum Clauses: Judge Chasanow’s October 18 Opinion in Ruifrok v. White Glove Rest. Servs., LLC, “Fitzpatrick on Employment Law” (Oct. 27, 2010) (available at:

Judge Motz faced a similar issue in Rihani v. Teen Express Distrib., LLC, 711 F. Supp. 2d 557 (D. Md. 2010).  In Rihani, Judge Motz granted employer’s motion to dismiss under Rule 12(b)(3) for improper venue based on its argument that the forum selection clause precluded a federal forum.  Judge Motz’s decision in this regard departs from that of Judge Cacheris in Nahigian v. Juno-Louduon, LLC, 661 F. Supp. 2d 563 (E.D. Va. 2009), in which Judge Cacheris found that a similar forum selection clause limited only the geographic location of the suit, and did not contain any limit on the sovereign able to decide the suit. 

In Match Factors, Inc. v. Mickey B. Henson Enters., No. 4:10-cv-00062, 2011 U.S. Dist. LEXIS 36931 (E.D.N.C. March 1, 2011), Magistrate Judge David W. Daniel of the federal district court for the Eastern District of North Carolina noted disagreement between Judge Motz’s decision in Rihani, and that of Judge Cacheris in Nahigian.   Match Factors, 2011 U.S. Dist. LEXIS 36931 at *25-*27.  The Match Factors court noted the conclusion in Rihani that the Nahigan court had “relied implicitly on one of two unacceptable premises: (1) that “the sole venue shall be Loudoun County” actually meant “the sole venue shall be Loudoun County or a court with venue over Loudon County,” or (2) that a geographic forum selection clause could not also create a de facto sovereignty limit[]” and went on to apply the reasoning in Rihani, rather than Nahigan to the facts before it.

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Individual Liability and the Joint Employer Doctrine Under the FLSA

Judge Matricciani, writing for the panel, issued an interesting analysis of the joint-employer doctrine in Campusano v. Lusitano Const. LLC, No. 1529, 2012 Md. App. LEXIS 125 (Md. Ct. Spec. App. Nov. 21, 2012).  In Campusano plaintiff had brought an action for unpaid wages and overtime under the Fair Labor Standards Act and the Maryland Wage Payment and Collection Law (the “MWPCL”) against his employer, Lusitano Construction; the sole owner of Lusitano, Mr. Geoffrey de Oliveira; and Mr. Francisco de Oliveira, a project supervisor employed by Lusitano.  The Court held that Mr. Francisco de Oliveira could not be liable under a joint-employer theory (the Court did not disturb the trial court’s conclusion that Mr. Geoffrey Oliveira was liable under the FLSA and MWPCL).  In so holding, Court applied the “economic realities” test to the Maryland Wage Payment and Collection Law for the first time, and found that Mr. Francisco de Oliveira was not an “employer” within the meaning of either the FLSA or the Maryland wage Payment and Collection Law.  The court explained his holding by noting that Geoffrey, not Francisco had the power to hire and fire, that Geoffrey’s line of credit with Francisco was unrelated to the Company, and that Francisco was uninvolved in paying employees. 

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Fourth Circuit Finds Disclaimer of Contractual Intent in Employee Handbook Effective

In Scott v. Merck  & Co., Inc., No. 11-1584, 2012 U.S. App. LEXIS 24461 (4th Cir. Nov. 27, 2012), the Fourth Circuit, applying Maryland law, reversed the district court’s decision regarding a disclaimer of contractual intent in an employee handbook.  In so doing, the Fourth Circuit found that the lower court had improperly analyzed a disclaimer of contractual intent under Maryland law.  The Court went on to explain that “[t]he presence of a clearly expressed disclaimer precludes the employee from proving the element of justifiable reliance on a claim of breach of contract regardless of how readily the employee could satisfy the other part of the analysis.” In other words “proof of the clear disclaimer renders moot any claim that the employer’s discretion was otherwise limited by a policy statement.”  The Court went on to find that the two disclaimers in the employer’s handbook “clearly and conspicuously” informed plaintiff that her employment was at will.  As such, the Court found that the case should not have proceeded to trial, and remanded the matter to the district court to enter judgment in favor of defendant.

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Court Finds that Question of Whether Arbitration Clause Survived Expiration of Underlying Agreement is Arbitrable

In Baltimore Cnty. Fraternal Order of Police Lodge #4 v. Baltimore Cnty., No. 3, 2012 Md. LEXIS 750 (Md. Nov. 19, 2012) the Maryland Court of Appeals issued an opinion on November 19 which addressed two issues relating to arbitration.  The first I when an arbitration agreement can survive the expiration of the underlying agreement of which it is a part.  Resolving this question in the affirmative, the Court went on to address the issue of who, the Court or the arbiter, should determine whether the arbitration agreement had, in fact, survived the expiration of the underlying agreement.  The Court found that the resolution of the first question was governed by Nolde Bros. v. Bakery & Confectionery Workers Union, 430 U.S. 243 (1977) and Litton Fin. Printing Div. v. NLRB, 501 U.. 190 (1991), and held that an arbitration clause can survive the expiration of the underlying agreement when the dispute:

Involves facts and occurrences that arose before expiration of the agreement, (2) where the rights that are the subject of the dispute accrued or vested during the life of the agreement, or (3) where, under normal principles of contract interpretation, the disputed contractual right survives expiration of the remainder of the agreement. 

Having resolved this matter, the Court went on to hold that, under Maryland law, Courts play a leading role only in deciding the arbitrability of a dispute as a threshold matter, and then only to the extent of determining whether a valid arbitration agreement exists.  In situations such as that described above, where the merits and arbitrability of a dispute overlap, the Court held that, because the issue of arbitrability cannot be resolved without considering substantive questions, that the issue should be left for determination by the arbiter in the first instance.

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Arbitration Does Not Toll Statute of Limitations

In Shailendra Kumar, P.A. v. Dhanda, 43 A.3d 1029 (Md. 2012), plaintiff, a practice group, brought suit against defendant, a physician, for breach of a partnership agreement.  The suit was initiated more than three years after the events giving rise to the breach, but less than three years after mandatory, non-binding arbitration which was required prior to the filing of suit under the partnership agreement.  Affirming the trial court and the Court of Special Appeals, both of which had dismissed plaintiff’s breach of contract claim as time-barred under the three-year statute of limitations, the Court of Appeals found that, while arbitration was a condition precedent to the suit, it neither tolled the statute of limitations nor delayed the accrual of the underlying breach of contract claims.

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