Every lawyer knows that it is important to enter into a signed engagement letter with a client before commencing legal representation. But, as one law firm recently discovered, even an unsigned engagement letter is better than none at all. The decision of the United States Bankruptcy Court for the Northern District of Georgia in Glass v. Miller & Martin, PLLC addresses this plus several other key concepts for Bankruptcy Court litigants.[1]
In 2011, after years of financial difficulties, Hutcheson Medical Center (“Hospital”) retained the law firm of Miller & Martin (“Defendant”) to represent it in connection with a series of transactions intended to stave off a bankruptcy filing. These efforts were ultimately unsuccessful and, on November 20, 2014, the Hospital filed a voluntary Chapter 11 petition. A Chapter 11 Trustee (“Trustee”) was appointed and, as part of his administration of the bankruptcy estate, he brought claims against the Defendant for legal malpractice.[2]
After denial of its motion to withdraw the reference and after demanding a jury trial, the Defendant filed a motion to transfer venue of the action from the Bankruptcy Court in the Northern District of Georgia to the Eastern District of Tennessee. The request was based upon a forum selection clause contained in Defendant’s engagement letter with the Hospital.[3]
The Bankruptcy Court approved the motion to transfer. As a threshold matter, the Court determined that even though no representative of the Hospital ever signed the engagement letter containing the forum selection clause, the Hospital’s conduct over the years established its assent to the terms.[4] The Court likewise showed little concern about enforcing a pre-petition forum selection clause in bankruptcy against a Chapter 11 Trustee. “The enforcement of a forum selection clause in a non-core proceeding that involves a debtor-derived claim does not threaten the objectives of the Bankruptcy Code or impair the Trustee's ability to fulfill his duties. In this proceeding, the Trustee stands in the shoes of HMC with respect to its prepetition, non-bankruptcy, state law claims against [Defendant].”[5]
After determining that neither the absence of a signed engagement letter nor the intervening bankruptcy altered the analysis, the Court next turned to the enforceability of forum selection clauses outside of bankruptcy. The Supreme Court has held that, “[w]hen the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause. Only under extraordinary circumstances unrelated to the convenience of the parties should a § 1404(a) motion be denied.”[6] The Trustee argued that congestion in the Courts of the Eastern District of Tennessee relative to the Northern District of Georgia as well as the “local interest in having local controversies decided in a home forum,” constituted the type of “extraordinary circumstances” warranting denial of the motion to transfer. The Court rejected both arguments. Neither of these considerations rose to the level required to justify non-enforcement of an otherwise valid forum selection clause.[7]
Finally, the Trustee urged the Court to prohibit invocation of the forum selection clause because the Defendant “substantially participated in litigation in this proceeding to the extent that its delayed request to enforce the engagement letter's forum selection clause results in a waiver. [ . . . ] Only after the District Court denied its motion to withdraw the reference did [Defendant] attempt to invoke the forum selection clause.”[8] But the Court was unpersuaded.
[T]he mere filing of the jury trial demand and the filing of the motion to withdraw the reference do not indicate an intent to waive its prepetition choice of forum. Deadlines exist for the filing of a jury trial demand and a motion to withdraw the reference. It is not unreasonable or unexpected for a defendant to take such necessary steps to protect its rights in the first stages of an adversary proceeding. [. . . ] Three months elapsed between the filing of the complaint and the filing of the motion to transfer venue. No discovery has occurred. The parties have acted timely and promptly within the stipulated deadline extensions they agreed upon. Based on the foregoing, under the totality of the circumstances, [Defendant] has not acted inconsistently with its right to invoke the forum selection clause.[9]
Bankruptcy Court litigants should take careful note of this Opinion: even an unsigned, prepetition forum selection clause may provide a sufficient basis for transferring venue away from a Bankruptcy Court.
[2] The Trustee alleged that, in connection with the pre-bankruptcy transactions meant to save the Hospital, the Defendant pledged certain assets of the Hospital to a third party without the knowledge or consent of the Hospital, thus precluding the Hospital from receiving equivalent value for the assets and diminishing the Hospital’s prospects to obtain additional financing. See Opinion at *9.
