Federal Courts Should Use State Law to Interpret a Contract’s Venue or Forum Selection Clause

In Contract Disputes, Contracts, Litigation & Lawsuits by Don KochersbergerLeave a Comment

10th Circuit Court of AppealsMost circuits have not decided this issue. Those that have addressed it typically recognize that no reason exists to treat a venue selection clause differently from the remainder of a contract that will be interpreted using state law. See, e.g.,  Northwest Nat. Ins. Co. v. Donovan, 916 F.2d 372, 374 (7th Cir. 1994) (“Validity and interpretation are separate issues, and it can be argued that as the rest of the contract, in which a forum selection clause, is found will be interpreted under the principles of interpretation followed by the state whose law governs the contract, so should that clause be.”); General Engineering Corp. v. Martin Marietta Alumina, Inc., 783 F.2d 352 (3rd Cir. 1986) (“The construction of contracts is typically a matter of state, not federal, common law, and forum selection clauses in diversity cases do not implicate a federal interest that justifies displacing state law.”); 14D Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 3803.1, at pp. 131-32 (3d ed. 2007) (“Despite the curious appeal by some lower courts to the federal common law of contract construction, it seems that the interpretation and character of the contract[’s forum selection clause] must be governed by state law.”)

Decisions from other courts that have not explicitly weighed in on the issue are nonetheless evolving towards using state law to interpret contractual venue provisions. For example, the Tenth Circuit has not explicitly decided this issue but recently has come to construe forum and venue selection provisions using state law. This evolution in the Court’s thinking may be traced from earlier cases like SBKC Service Corp. v. 111 Prospect Partners, L.P., 105 F.3d 578, 581 (10th Cir. 1997), in which the Court focused on the “language and intent” of the parties to interpret a choice of venue provision. Id. Ultimately, however, the court determined that such an approach “makes unnecessary exploration of whether federal common law or Kansas law should apply because the result would be the same in either case.” Id. Similarly, in Excell, Inc. v. Sterling Boiler & Mechanical, Inc., 106 F.3d 318 (10th Cir. 1997), the court stated, “The parties have not discussed whether Colorado state law or federal common law controls the validity and interpretation of the forum selection clause. Because we believe there are no material discrepancies between Colorado law and federal common law on these matters, we find it unnecessary to decide the issue. Id. at 320.

More recently, the Tenth Circuit has recognized that a federal district court’s interpretation of forum and venue selection clauses is a matter of contract interpretation and looked to the relevant law chosen by the parties to guide that effort.  In Yavuz v. 61 MM, Ltd., 465 F.3d 418 (10th Cir. 2006), the Court stated that it saw no reason why a forum selection clause in an international agreement, “among the multitude of provisions in a contract, should be singled out as a provision not to be interpreted in accordance with the law chosen by the contracting parties.” Id. at 427-28. In Jones v. KP&H LLC, 288 Fed. Appx. 464, 468 (10th Cir. July 22, 2008) (unpublished), the court looked directly to Kansas law rather than federal common law to construe a choice of venue provision because the contract provided that Kansas law governed construction of its terms.

Especially in cases where the parties to a contract have chosen the law of a state to govern the interpretation of their agreement, courts should not overrule their decision by imposing a construction of their venue provision using federal common law. We recently submitted a brief on this issue in the Tenth Circuit, but the case settled after we filed our opening brief.

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