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Tuesday, November 30, 2010

Get Back to Where You Once Belonged: Fourth Circuit Upholds Application of Forum Selection Clause

by Kirsten E. Small

The Fourth Circuit yesterday affirmed a district court order remanding a case to the state courts of Virginia. FindWhere Holdings, Inc. v. Systems Environment Optimization, LLC (No. 09-2155)

FindWhere, a seller of global positioning systems, entered into a distribution contract with Homeland Security Systems. The contract included a forum selection clause, which provided that venue any suit under the contract "shall lie exclusively in, or be transferred to, the courts of the State of Virginia." After FindWhere sued Homeland in Loudoun County, Virginia, Homeland removed the action to the Eastern District of Virginia on the basis of diversity jurisdiction. The district court granted FindWhere's motion to remand, holding that the forum selection clause allowed suits only in state court. Homeland appealed.

The Fourth Circuit first held that it had jurisdiction over the appeal, holding that the general prohibition of appellate review of remand orders does not include remands based upon forum selection clauses. In so holding, the court joined every other circuit that has considered the issue.

The court then affirmed the remand order. Homeland argued that the "or be transferred to" language of the forum selection clause established that venue in federal court was proper, because only a federal court can "transfer" a case to another jurisdiction. In rejecting this argument, the court first applied the "widely accepted rule" that when a forum selection clause uses the phrase "of [a state]," venue is exclusively in state court; only the phrase "in [a state]" indicates an intent to allow suit in state or federal court.

The Fourth Circuit then rejected Homeland's argument that the reference to "transferring" a case was evidence of an intent to permit suits in federal court. Although the language of the opinion is not crystal clear, the court appeared to hold that a proper reading of the word "transfer" includes not just district-to-district transfers under 28 U.S.C. § 1404(a), but also remands from federal to state courts in Virginia.

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