In litigation between German and New Mexico companies, Tenth Circuit decides that forum selection clause declaring that "jurisdiction for all and any disputes arising out of or in connection with this agreement is Munich" has permissive rather than mandatory effect
K & V Scientific Co., Inc. (K & V), a New Mexico corporation, developed a novel technology for triggering air bags in automobiles. It consisted of a semiconductor bridge that bursts into a plasma discharge to ignite some pyrotechnic material that inflates the air bag. The Sandia Laboratories in New Mexico had developed the process for military applications. After the government allowed K & V to market the mechanisms for private automobiles, K & V got in touch with Bayerische Motorenwerke (BMW) in Germany.
In 1996, K & V and BMW agreed that K & V would design BMW's "next generation" air bag systems. The deal included a confidentiality clause.
In 1997, BMW mailed a new confidentiality agreement to K & V. This time it contained a choice-of-forum clause which stated: "Jurisdiction for all and any disputes arising out of or in connection with this agreement is Munich. All and any disputes arising our of or in connection with this agreement are subject to the laws of the Federal Republic of Germany." K & V signed the new provision.
After the parties had a falling out, BMW allegedly began working directly with the original developers of the semiconductor bridge. K & V then sued BMW in a New Mexico state court claiming, inter alia, that BMW had breached the confidentiality agreements, and had acted in bad faith.
BMW had the case removed to federal court, and moved to dismiss for lack of personal jurisdiction and improper venue. The district court granted BMW's motion to dismiss for improper venue because the forum selection clause in the 1997 confidentiality agreement was "unambiguous and enforceable." K & V appealed. The U.S. Court of Appeals for the Tenth Circuit reverses and remands.
K & V argued that the forum selection clause in the 1997 confidentiality agreement was permissive rather than mandatory. ""Mandatory forum selection clauses contain clear language showing that jurisdiction is appropriate only in the designated forum.' ... "In contrast, permissive forum selection clauses authorize jurisdiction in a designated forum, but do not prohibit litigation elsewhere.' ..."
"... The district court ... purported to rely exclusively on Tenth Circuit precedent in general, and our decision in Milk "N' More, Inc. v. Beavert, 963 F.2d 1342 (10th Cir. 1992), in particular. In Milk "N' More, we concluded that a forum selection clause stating "venue shall be proper under this agreement in Johnson County, Kansas' was mandatory. [Cite] Based upon our holding in Milk "N' More, the district court concluded that the relevant language of the forum selection clause at issue here, i.e., "jurisdiction ... is Munich,' was unambiguous and mandatory. ... The district court also concluded that the choice of law provision contained in the parties' confidentiality agreement "supported the interpretation that jurisdiction is to be located exclusively in a court best suited to interpret and apply German law, e.g., Munich.' [Cite]" [Slip op. 9-11]
The Court disagrees with this analysis. The majority of the Circuits have considered the following forum selection clauses to be permissive: (1) "Any dispute arising between the parties hereunder shall come within the jurisdiction of the competent Greek Courts, specifically of the Thessaloniki Courts"; (2) "The laws and courts of Zurich are applicable"; (3) "Place of jurisdiction is Sao Paulo/Brazil"; and (4) "This agreement shall be governed by and construed in accordance with the laws of the Federal Republic of Germany ... Place of jurisdiction shall be Dresden."
On the other hand, more than half of the Circuits have treated the following clauses as mandatory: (1) "Place of jurisdiction ... is the registered office of the trustee [in Germany], to the extent permissible under the law"; (2) "In all disputes arising out of the contractual relationship, the action shall be filed in the court which has jurisdiction for the principal place of business of the supplier ... The supplier also has the right to commence an action against the purchaser at the purchaser's principal place of business"; and (3) "Licensee hereby agrees and consents to the jurisdiction of the courts of the State of Virginia. Venue of any action brought hereunder shall be deemed to be in Gloucester County, Virginia."
In this case, the Court concludes: "Applying the majority rule, which we believe is sound, to the facts before us, we have little trouble concluding that the forum selection clause at issue is permissive. In particular, the clause refers only to jurisdiction, and does so in non-exclusive terms (e.g., there is no use of the terms "exclusive,' "sole,' or "only'). ... Even if the clause were deemed to be ambiguous (i.e., capable of being construed as either permissive or mandatory), the rule in this circuit and others is that the clause must be construed against the drafter, in this case defendant. ..." [Slip op. 17-18]
Citation: K & V Scientific Co., Inc., v. Bayerische Motoren Werke Aktiengesellschaft, 314 F.3d 494 (10th Cir. 2002).
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