January 10, 2020
Acquisition documents often have a forum selection clause. And like any provision ambiguity can invite a dispute if litigation breaks out after the closing.
The seller was a manufacturing company located in Butler County, Ohio. It sold its assets to the buyer in a multi million-dollar deal, which was documented by an asset purchase agreement.
After the sale, seller sued the buyer in the Butler County Court of Common Pleas in anticipation of an alleged breach of the asset purchase agreement. The buyer removed the suit to a federal court sitting in Cincinnati, which is not in Butler County.
The seller asked the court to remand the lawsuit back to the state court in Butler County. The buyer resisted the request and both buyer and seller referred to the asset purchase agreement’s forum selection clause to support its position.
The provision said: “ANY LEGAL SUIT, ACTION, OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY MAY BE INSTITUTED IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE COURTS OF THE STATE OF OHIO IN EACH CASE LOCATED IN THE COUNTY OF BUTLER, AND EACH PARTY HERETO IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION, OR PROCEEDING . . . . THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION, OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION, OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.”
The court said that the forum selection clause was ambiguous. The clause said that any asset purchase agreement dispute should be resolved in a federal or state court in Butler County. However, the federal court does not sit in Butler County.
Given that ambiguity the court concluded that the most reasonable interpretation of the forum selection clause was that the parties agreed to resolve disputes in either a state court located in Butler County or a federal court having jurisdictions for Butler County disputes.
Given that conclusion, the seller argued that the buyer had waived its statutory right to remove the case to federal court. The court disagreed finding that buyer did not waive this right of removal. In other words, the lawsuit remained in the Cincinnati federal court.
This case is referred to as The Bidwell Family Corporation v. Shape Corp., Case No. 1:19-cv-201, United States District Court, S.D. Ohio, Western Division (December 9, 2019).
The lesson here is clear. Be precise. If the seller wanted to litigate in Butler County alone the forum selection clause should not also provide for a federal court venue. Furthermore, the parties should have expressly waived the right to remove a Butler County state court dispute to a federal court.
By John McCauley: I help companies and their lawyers minimize legal risk associated with small U.S. business mergers and acquisitions (transaction value less than $50 million).
Telephone: 714 273-6291
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