Free Rein Venue Choices? Not So Fast Says the Commercial Division

Farrell Fritz, P.C.
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The principles of jurisdiction and venue are paramount when determining not only where a proceeding will be conducted, but also which particular laws will govern the proceeding. Typically, contracting parties attempt to resolve jurisdiction and venue issues by including an exclusive jurisdiction and/or forum selection clause within a contract.

In Meritage Hospitality Group, Inc. v North Am. Elite Ins. Co., 2021 NY Slip Op 50700(U) [Sup Ct, Albany County July 26, 2021]),  Justice Richard M. Platkin of the Albany County Commercial Division, analyzed the interesting question of what happens when contracting parties agree to submit to the jurisdiction of New York state courts, but fail to select a specific county as a venue. Justice Platkin held that in this scenario, the venue requirements under CPLR § 503 were required to be satisfied since the forum selection clause failed to designate a “specific venue.”

By way of background, Plaintiff Meritage Hospitality Group, Inc. (“Meritage”), is a Michigan based corporation that owns and operates over 346 restaurants, most of which are Wendy’s fast food restaurants, in 16 states.  Seeking to protect itself in the event that the operations of its restaurants were suspended or reduced, Meritage purchased an all risk insurance policy (the “Policy”) from Defendant North American Elite Insurance Company (“NAE”), a New Hampshire insurance company with a principal place of business in New York County.  Meritage’s Policy contained several coverage extensions, including coverage for (1) direct physical loss or damage related to orders of civil authority; (2) property damage coverage for “Communicable Disease Response”; and (3) property damage coverage for “Protection and Preservation of Property — Property Damage.”  In addition, the Policy contained the following forum selection clause:

Governing Law and Jurisdiction 

1. The laws of the State of New York, without regard to its conflict of laws rules, that would cause the application of the laws of any other jurisdiction, shall govern the construction and interpretation of this POLICY.

2. The parties hereto do irrevocably submit to the exclusive jurisdiction of the Courts of the State of New York, and to the extent permitted by law, the parties expressly waive all rights to challenge or otherwise limit such jurisdiction.

As a result of the COVID-19 pandemic, Meritage submitted a business interruption claim to NAE, citing the loss of income from state and local closure orders.  In response, NAE issued a letter to Meritage, stating that outside the possible exception for property damage coverage for “Communicable Disease Response,” the Policy would not provide coverage for other aspects of Meritage’s claim.  Subsequently, Meritage commenced an action against NAE in the Supreme Court, Albany County, alleging claims for breach of contract, unjust enrichment, and declaratory judgment.

Following the commencement of Meritage’s lawsuit, NAE made a demand that venue be transferred to the Supreme Court, New York County, under CPLR 511 because (i) Albany County was an improper venue since neither party resided there; and (ii) New York County was proper because NAE maintained a principal place of business there. In response, Meritage refused the demand, arguing that venue was proper based on the Policy’s forum selection clause.

Consequently, NAE filed a motion to transfer venue of the action to New York County.  As part of its motion, NAE argued that Meritage’s filing of the lawsuit in Albany County was in violation of CPLR § 503 , since the parties’ forum selection clause in the Policy only resolved the issue of jurisdiction, not venue.  In opposition, Meritage argued that the forum selection clause allowed the parties to have free rein over where they could file a lawsuit in New York. Specifically, Meritage argued that the term – “the Courts of the State of New York” – satisfied the requirements of CPLR § 501, and gave the parties carte blanche authority to choose any venue within New York.

Before analyzing the forum selection clause of the Policy, the Court noted that “jurisdiction and venue” are separate and distinct concepts, as jurisdiction concerned a court’s authority to hear and determine a dispute, whereas venue pertains to “the proper situs” (i.e., place of trial) of an action or proceeding within the court system (see Weingarten v Board of Educ. of City School Dist. of City of NY, 3 Misc 3d 418, 420 [Sup Ct, Bronx County 2004]).  With that in mind, the Court focused on whether the forum selection clause relied upon by Meritage authorized venue to be placed in Albany County (see CPLR § 501).  After assessing the Policy, the Court held that the forum selection clause did not specifically fix the place of trial and/or venue, since the language of “the Courts of the State of New York” only applied to the jurisdiction of a potential lawsuit.  In addition, the Court found that the Policy failed to include any language that waived a party’s right to challenge venue.  And so, the Court granted NAE’s motion to transfer the venue to New York County, as NAE established that it had a principal place of business in New York County and that Meritage was not a resident of New York (see CPLR §§ 503 (a) and (c)).

Takeaway:

This decision provides a strong reminder that when drafting forum selection clauses, lawyers should be as precise as possible.  Therefore, to avoid the default venue requirements of CPLR § 503, a forum selection clause must specify that any dispute between the parties shall be litigated in a particular designated venue.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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