New Jersey v. Merrill Lynch & Co., Inc.
640 F.3d 545
3rd Cir.2011Background
- State of New Jersey, Division of Investment, sued Merrill Lynch & Co. and Bank of America, alleging improper favorable terms in a July 2008 Share Exchange Agreement.
- Merrill Lynch sought to convert preferred stock to common stock under negotiated terms; New Jersey demanded terms as favorable as other stockholders’ conversions.
- Plaintiff filed in New Jersey Superior Court; defendant removed to federal district court citing federal interest in securities issues.
- District Court remanded, interpreting the forum selection clause to require New Jersey state-court litigation.
- Court of Appeals held the clause waives removal rights, and remand to state court was proper for contract interpretation.
- Clause language: “exclusive jurisdiction … shall lie in the appropriate courts of the State [of] New Jersey.”
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the forum clause waive removal to federal court? | New Jersey interprets clause to limit to New Jersey state courts only. | Clause allows litigation in any New Jersey court, state or federal. | Yes, it waives the right to removal. |
| What is the meaning of “appropriate courts of the State of New Jersey”? | Reference to courts in New Jersey includes federal courts there. | “Of New Jersey” restricts to New Jersey state courts only. | Restricts to New Jersey state courts; not federal courts. |
| Is Jumara controlling despite its context? | Jumara supports broader interpretation to include federal court. | Jumara not controlling; clause negotiated, not statute-driven. | Jumara not controlling; clause is a negotiated waiver. |
| Should contra proferentem apply given state-drafted clause? | Ambiguity should be construed against drafter (State). | Clause not ambiguous; sophisticated parties negotiated terms. | No ambiguity; enforce as waiver of removal. |
Key Cases Cited
- Jumara v. State Farm Ins. Co., 55 F.3d 873 (3d Cir. 1995) (forum clause interpreted in context of arbitration; not exclusive by statute.)
- Foster v. Chesapeake Ins. Co., Ltd., 933 F.2d 1207 (3d Cir. 1991) (recognizes exceptions to § 1447(d) for forum-based remand reviews.)
- Buono Sales, Inc. v. Chrysler Motors Corp., 449 F.2d 715 (3d Cir. 1971) (plain meaning governs forum clauses; geographic interpretation.)
- Regis Associates v. Rank Hotels (Mgmt.) Ltd., 894 F.2d 193 (6th Cir. 1990) (early standard for “clear and unequivocal” waivers rejected.)
- FindWhere Holdings, Inc. v. Sys. Env't Optimization, LLC, 626 F.3d 752 (4th Cir. 2010) (circuit held forum clause requires remand to state court.)
- Dixon v. TSE Int'l Inc., 330 F.3d 396 (5th Cir. 2003) (“of” state connotes sovereignty; limits to state courts.)