California Court of Appeal Enforces Venue Selection Clause in Contract
Parties often contractually designate the state where one can sue (i.e., forum selection clauses) and the county within the state where one can sue (i.e., venue selection clauses). An older California Supreme Court case had held that venue selection clauses were void, but was decided in the context of a clause which selected an impermissible venue under California’s then-existing venue selection statute. A recent decision by the California Court of Appeal held, for the first time, that venue selection clauses in contracts are enforceable, so long as the venue selected is a permissible one under California’s current venue selection statutes. Battaglia v. Superior Court (2013) 215 Cal. App. 4th 309.
THE DECISION IN BATTAGLIA
Over 75 years ago, the California Supreme Court, in General Acceptance Corp. v. Robinson (1929) 207 Cal. 285, held that venue selection clauses in contracts were void. At that time, California’s venue selection statute provided only one permissible venue—the location of the defendant’s residence. Noting that “the jurisdiction of the court is beyond the agreement of the parties,” the court voided a provision that identified a venue different from the defendant’s residence.
The California venue selection statutes have evolved since 1929. The current scheme, set forth in Code of Civil Procedure §§ 392-403, provides venue may be proper in one of several locations (depending on the particular facts). For example, where the defendant is a corporation, venue is proper in the “county where the contract is made or is to be performed, or where the obligation or liability arises, or the breach occurs; or in the county where the principal place of business of such corporation is situated . . . .” Cal. Code Civ. Proc. § 395.5.
In Battaglia, a food supplier brought suit for breach of contract in San Diego, where the food supplier was based, against a restaurant. Relying on a venue selection clause in the parties’ contract, the restaurant sought to transfer venue to Orange County, where the contract indicated “any litigation” must be brought, and where the restaurant was based. Although both venues were permissible under the California statute, the trial court granted the restaurant’s transfer motion based on the contract. The food supplier challenged the trial court’s decision.
The food supplier relied on General Acceptance in arguing that venue selection clauses are void as against public policy. The Court of Appeal disagreed, however, with the food supplier’s broad reading of the General Acceptance opinion. The Court of Appeal noted that General Acceptance had previously been overruled to the extent it prohibited forum selection clauses but, citing Alexander v. Superior Court (2003) 114 Cal.App.4th 723 726, also acknowledged that it was still good law in the context of venue selection clauses. Nevertheless, the Court of Appeal read the General Acceptance decision narrowly as only prohibiting parties from selecting a venue in a contract where the venue selected was otherwise impermissible under California’s venue selection statutes.
Because Orange County was a permissible venue under the California statute (as it was the restaurant’s principal place of business), the Court of Appeal held that the parties should be bound by their agreement. Specifically, the Battaglia court held that “where . . . two sophisticated parties agree, pursuant to arm’s length negotiations, to litigate an action in one of multiple statutorily permissible venues, they should be held to their agreement.”
SIGNIFICANCE OF DECISION
The Battaglia decision provides parties, for the first time, with clear guidance on when a venue selection clause in a contract will be enforceable in California. So long as the venue identified in the contract is a permissible venue under the California venue selection statutes, California courts will enforce the parties’ agreement on venue selection. Thus, counsel drafting venue selection clauses should be careful to select a permissible venue (or run the risk that the provision will be unenforceable).
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