Robert LANGLEY; Mountaineer Development Company, Ltd; Colony Crossing, LLC; Langley-Colonial, LLC, Plaintiffs-Appellees, v. PRUDENTIAL MORTGAGE CAPITAL COMPANY, LLC, Defendant-Appellant, National City Bank, Defendant.
No. 08-5032.
United States Court of Appeals, Sixth Circuit.
Oct. 27, 2008.
Argued: June 5, 2008.
Before: MERRITT, MOORE, and ROGERS, Circuit Judges.
The court delivered a PER CURIAM opinion. MOORE, J.(pp. 369–71), delivered a separate concurring opiniоn. MERRITT, J. (pp. 371–73), delivered a separate dissenting opinion.
OPINION
PER CURIAM.1
I.
This case involves two sizeable real estate loans—one for $43 million, the other for $14 million—by Prudential, the lender, to Robert Langley, the borrower. The dispositive issue on appeal is whether two contracts, both of which included a forum selection clause choosing New York as the forum for litigation, should be enforced. The federal district court below determined that the contracts were invalid and thus declined to enforce the forum seleсtion clauses. Because a valid and enforceable contract exists, we vacate and remand for the district court to entertain a motion to enforce the forum selection clause under
II.
This appeal stems from two loan agreements between Langley and Prudential Mortgage Capital Company, LLC (“Prudential“). First, on June 6, 2007, Langley signed a loan for $43,300,000 to finance a commercial real estate project in Gulf Shores, Alabama, known as Craft Farms (the “Craft Farm loan“). And second, Langley signed a loan for $13,800,000 on June 25, 2007, to finance a commercial real estate project in Mississippi known as Colony Crossing (the “Colony Crossing loan“). The parties also agreed to “Rate Lock Agreements” for both loans, which were signed on the same days as the two loan agreements. The Rate Lock Agreements, which are at the heart of this controversy, both included the following choice of law and forum selection clause:
Pursuant to Section 5-1401 of the General Obligations of the State of New York, this Agreement shall be governed by the substantive law of the State of New York (without regard to the principles of conflicts of laws). Pursuant to Section 5-1402 of the General Obligations Law of the State of New York, the parties hereto elect that any litigation arising out of this Agreement shall be brought only in a state or federal court sitting in New York County in the State of New York.
(Emphasis added).
The Rate Lock Agreements resulted from negotiations to determine the exact
Beginning in the summer of 2007, the rate on the 10-Year Treasury Notes began to drop as a result of the subprime mortgage crisis. Prudential characterized this event as a material adverse change and demanded that Langley increase the rate lock deposits in order to maintain the terms of the Rate Lock Agreements. Meanwhile, a dispute had developed over the interpretation of the Rate Lock Agreements; specifically, the parties disagreed about whether they had agreed to fix the interеst rates for the loans absolutely or whether the agreements simply fixed the interest rate spread (which was subject to change). Langley ultimately delivered two letters of credit—drawable on an account at National City Bank—to Prudential in response to Prudential‘s demand that he increase the rate lock deposits: one on August 20, 2007, and the other on August 21, 2007.2 As market conditions continued to fluctuate, the parties entered into what proved to be unsuccessful discussions about modifying the terms of the loan. Prudentiаl then informed Langley that the failure to finalize the two loans constituted unwind events under the agreements. Accordingly, Prudential informed Langley that it would seek to have the letters of credit honored as part of the unwind costs. Langley then filed an action on December 3, 2007, seeking to enjoin National City Bank, a co-defendant, from honoring the letters of credit that Langley had provided to Prudential. In response, Prudential argued that the forum selection clauses should be enforced and that the injunction should not issuе.
The district court rejected the forum selection clauses and then issued the preliminary injunction on December 6, 2007. On the forum selection clause issue, the district court‘s decision is as follows:
As a preliminary matter, the Court must address Prudential‘s assertion [that] pursuant to the Rate Lock Agreement, any disputes arising from the Rate Lock Agreements “shall be governed by the substantive law of the State of New York” and that any litigation arising out of the Rate Lock Agreements “shall be brought only in a state or federal court sitting in New York County in the State of New York.” Plaintiffs contend that as there was no meeting of the minds regarding the Rate Lock Agreements, the choice of law and forum selection clauses do not control this litigation, a contention with which this Court agrees. Accordingly, this Court is a proper forum for this litigation, which shall be governed by the substantive law of the Commonwealth of Kentucky.
Langley v. Prudential Mortgage Capital Co., No. 07-cv-404-JMH, 2007 WL 4365423, at *2, 2007 U.S. Dist. LEXIS 92224, at *5 (E.D.Ky. Dec. 12, 2007). This appeal followed.
III.
Prudential argues in this appeal that the district court committed revers-
The district court focused on the parties’ disagreement about whether the agreements locked the interest rates absolutely or merely the spread in finding that there was no meeting of the minds. Langley argues that the agreements froze the interest rates at a fixed value for each loan, while Prudential contends that the parties only agreed to fix the interest rate spread. According to Prudential, therefore, the occurrence of certain events—including the crisis in the lending markets—could trigger an increase in the rates paid by Langley. The district court treated the disagreement on this particular issue as fatal to the entire contract.
In reaching its determination that no contract existed, the district court applied Kentucky law (the law of the fоrum) as opposed to New York law (the law chosen by the litigants). Importantly, “if no contract exists, the language of the forum-selection clause cannot logically deprive [the plaintiff] of its significant right of access to the courts of the United States.” Evolution Online Sys., Inc. v. Koninklijke PTT Nederland N.V., 145 F.3d 505, 509 (2d Cir.1998); see also Wallace Hardware Co. v. Abrams, 223 F.3d 382, 391 (6th Cir.2000) (applying the choice-of-law rules of the forum state to determine whether to enforce a contract containing a choice of law clause). As a result, the district court was correct that Kentucky lаw governs the initial question of whether the agreements containing the forum selection clauses were valid. Cf. Inghram v. Universal Indus. Gases, Inc., No. 1:05-cv-19, 2006 WL 306650, at *1, 2006 U.S. Dist. LEXIS 7730, at *2-3 (E.D.Tenn. Feb. 8, 2006).
Under Kentucky law, “not every agreement ... rises to the level of a legally enforceable contract.” Kovacs v. Freeman, 957 S.W.2d 251, 254 (Ky.1997). “An enforceable contract must contain definite and certain terms setting forth the promises of performance to be rendered by each party.” Id. (citing Fisher v. Long, 294 Ky. 751, 172 S.W.2d 545 (Ky.1943)). There must also be mutuality of obligations. Kovacs, 957 S.W.2d at 254 (citing Morgan v. Morgan, 309 Ky. 581, 218 S.W.2d 410 (Ky.1949)). However, “where parties differ as to the terms of an express contract and there is evidence ... tо support the claim of each of them, it is for the jury to determine what the contract term in question is.” Hartford Accident & Indem. Co. v. Middlesboro-LaFollette Bus Line, Inc., 357 S.W.2d 671, 673 (Ky.1962).
Prudential is correct that contracts between the parties were formed. The contracts were fully executed by the parties who then proceeded to act in reliance on them. There is simply a difference of opinion as to the meaning of the contracts. Both parties assumed obligations so as to ensure the financing for the real estate projects. The parties chоse specific dates for performance, outlined the events necessary for performance, and indicated a desire to be bound by the contract. Moreover, Langley does not argue that the contracts were the product of fraud. Rather, the disagreement centers on the meaning of particular terms in otherwise enforceable agreements. Because the record indicates that this disagreement is the result of a good faith dispute and that both interpretations arе supported by the evi-
IV.
Because the district court‘s conclusion regarding the validity of the contracts was incorrect, we now turn to the issue of whether the forum selection clauses contained therein should be enforced. While we would find the forum sеlection clause enforceable, Defendant has not yet moved for enforcement of the clause through either a motion to transfer venue under
Because the district court has not had the opportunity to consider either a motion to dismiss or a motion to transfer, we VACATE the injunction and REMAND so that the court may rule, consistently with this opinion, on a properly brought motion based on the forum selection clause.
KAREN NELSON MOORE, Circuit Judge, concurring.
I concur with the per curiam opinion but write separately to set forth my view of the Supreme Court and Sixth Circuit precedent concerning the two procedural mechanisms that may be used to enforce a valid forum-selection clause: (1) a motion to dismiss under
In Ricoh, the Supreme Court held that a federal court should apply
Section 1404(a) directs a district court to take account of factors other than those that bear solely on the parties’ private ordering of their affairs. The district court also must weigh in the balance the convenience of the witnesses and those public-interest factors of systemic integrity and fairness that, in addition to private concerns, come under the heading of “the interest оf justice.”
Id. at 30. The Court also noted that the district court should consider the “convenience of a [proposed transferee] forum given the parties’ expressed preference for that venue, and the fairness of transfer in light of the forum-selection clause and the parties’ relative bargaining power.” Id. at 29.
In Kerobo, we applied Ricoh to a case “that in all material respects” was “indistinguishable from Ricoh.” 285 F.3d at 533. The plaintiffs in Kerobo brought suit in Michigan state court alleging various claims arising out of a franchise agreement, which contained a forum-selectiоn clause providing that any suit must be brought in Orange County, California. Id. at 532-33. The defendants removed the case to federal district court in Michigan, and then moved either to (1) dismiss the suit for improper venue pursuant to
We first held that Rule 12(b)(3) is not a proper procedural mechanism for enforcing a forum-selection clause, at least in cases removed from state to federal court. See id. at 534-36. We observed that under the federal removal statute,
Ricoh and Kerobo thus indicate that, when a party seeks to enforce a forum-selection clause by moving to transfer venue,
On the other hand, when a party seeks to enforce a forum-selection clause viа a properly brought motion to dismiss, the district court may enforce the forum-selection clause by dismissing the action. See Security Watch, 176 F.3d at 374-76.2 In Security Watch, the plaintiff brought suit in the U.S. District Court for the Western District of Tennessee alleging breach of contract and other claims. Id. at 370. The contracts at issue contained both a forum-selection clause, providing that any action must be brought in state or federal court in Virginia, and an alternative-dispute-resolution (“ADR“) clause. Id. The defendants moved to dismiss pursuant to Rule 12(b) of the Federal Rules of Civil Proсedure (without naming a specific sub-
Accordingly, it is my view that the two lines of cases described above provide alternative procedural mechanisms for enforcing a valid forum-selection clause. Whether a district court should consider a forum-selection clause as one factor within
MERRITT, Circuit Judge, dissenting.
The forum shopping and procedural fencing litigation tactics of plaintiff‘s lawyers in this case are obvious. The case was filed in an alien forum in contravention of a perfectly valid forum selection clause for the purposes of delay and obfuscation. The defendants immediately protested and cited the contract provision. In a hasty and completely erroneous opinion, the District Court decided the case for the local plaintiffs and enjoined the defendants from seeking to collect their debts elsewhere by any means. Reading my colleague‘s opinion, you would never know that this is what this case is about. Based upon no stated policy, principle or purpose, my cоlleagues further prolong and protract the litigation by sending it back to the same alien courtroom for unnecessary motions, delay and wasted litigation costs while the mortgage market deteriorates. I would follow the admonition of Justices Kennedy and O‘Connor in their concurring opinion in the Ricoh Corporation case, 487 U.S. 22, 33 (1988), concerning the enforcement of contractual forum selection clauses that the parties have clearly agreed to:
The federal judicial system has a strong interest in the correct resolution оf these questions [regarding the enforcement of a forum selection clause], not only to spare litigants unnecessary costs but also to relieve courts of time consuming pretrial motions. Courts should announce and encourage rules that support private parties who negotiate such clauses. (Emphasis added.)
I would “support” the forum selection clause of the parties.
We have set aside the injunction issued by the District Court, an injunction which effectively decided the case for the loсal plaintiffs against the New York lenders, Prudential and National City Bank. The court below dispensed with the forum selection clause and voided the contract and then enjoined the defendants from “requesting payment” or attempting to enforce the contract by drawing “upon the following irrevocable, standby letters of credit guaranteed by plaintiffs.” The injunction attempted to end the controversy by stopping the lenders from bringing a contract action in New York, as provided in the contract between thе parties. In light of the potential for delay and further error, we should decide the forum selection clause issue ourselves here and now.
The enforceability of a forum selection clause is a question of contract law that we review de novo. Security Watch, Inc. v. Sentinel Sys., Inc., 176 F.3d 369, 371 n. 2 (6th Cir.1999) (citing Baker v. LeBoeuf, Lamb, Leiby & Macrae, 105 F.3d 1102, 1104 (6th Cir.1997)). When analyzing forum selection clauses, we have relied on the RESTATEMENT (SECOND) OF CONFLICT OF LAWS. See Security Watch, 176 F.3d at 375. Although the district court only performed a cursory analysis of the forum selection clause, the issue was decided and is ripe for review. Cf. Kroger Co. v. Malease Foods Corp., 437 F.3d 506, 510 (6th Cir.2006).
Though forum sеlection clauses were once disfavored, the Supreme Court stated in 1972 that such clauses are “prima facie valid and should be enforced unless enforcement is shown by the resisting party to be ‘unreasonable’ under the circumstances.” The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972) (citation omitted); see also RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 80 (1988 Revision) (“The parties’ agreement as to the place of action will be given effect unless it is unfair or unreasonable.“). According to the RESTATEMENT, a court should only decline to enforce a forum selection clause if: (1) it was “obtained by fraud, duress, the abuse of economic power or other unconscionable means,” (2) the designated forum “would
First, nothing in the record suggests that the Rate Lock Agreements were the result of fraud, duress, or an abuse of economic power. Langley is a sophisticated investor with considerable experience making real estate development projects on the scale of those involved in the instant litigation. Second, New York is an appropriate venue, one capable of handling the lawsuit effectively and fairly. Indeed, New York occupies an important position as a center of financial markets and institutions. See, e.g., Fieger v. Pitney Bowes Credit Corp., 251 F.3d 386, 394 (2d Cir.2001). Finally, the designation of New York as the venue for any litigation would not result in an injustice to either Langley or Prudential. Langley is a resident of Florida, while Prudential‘s representatives were located in Chicago, Illinois. The real estate projects underlying this litigation were located in Alabama and Mississippi. As a result, there is no true epicenter of thе case. And while it is true that Langley‘s two corporate co-plaintiffs were located in Kentucky and that a number of the events leading to this lawsuit also occurred there, I do not believe that this fact creates a sufficiently compelling reason to disregard the contractually agreed upon venue. The parties to this lawsuit are sophisticated and capable entities; consequently, honoring the forum selection clause will not result in any injustice.
A remand for further motions and proceеdings, including a potentially long, drawn-out proceeding under
UNITED STATES STUDENT ASSOCIATION FOUNDATION, as an organization and representative of its members, American Civil Liberties Union Fund of Michigan, as an organization and representative of its members, American Civil Liberties Uniоn of Michigan, as an organization and representative of its members, Plaintiffs-Appellees,