California Procedure,  California Supreme Court,  Contracts,  Jurisdiction

Confusing Jurisdiction with Forum Selection

It’s common to see forum selection clauses in contracts.  It’s also common to see such clauses purport to limit “jurisdiction” to the courts of a given state or even a specific county within the state.

Nice try.  No matter the skill of the lawyers, parties simply cannot strip a court of subject matter jurisdiction by private agreement, as we are reminded by the Third District Court of Appeal in Miller-Leigh, LLC v. Henson, case no. C051652 (June 28, 2007).  The parties to a lease guaranty for leased property in Arizona included a provision stating that the guaranty was governed by Arizona law and that “Arizona is the proper jurisdiction for any matters relating to” the lease or guaranty.  The lease provisions was more restrictive, stating that “any court action relating to this Lease shall be instituted and prosecuted only in a court of competent jurisdiction in Maricopa County, Arizona, and each party waives his rights, if any, to institute or prosecute suit in any forum other than Maricopa County, Arizona.”  The California trial court sustained defendants’ demurrer brought on the ground that it lacked subject matter jurisdiction over the claims for breach of guaranty, fraud, account stated and open book account, but denied their motion for attorney fees because it held it likewise lacked jurisdiction to decide the fee motion.

The Court of Appeal reverses.  While the trial court could have chosen to enforce the forum selection clause, it erred in dismissing for lack of jurisdiction.  The trial court’s subject matter jurisdiction over these claims cannot be limited by the agreement of the parties.  The concepts of subject matter jurisdiction and forum selection are distinct, and the forum selection clause cannot be enforced by a demurrer asserting lack of subject matter jurisdiction.

This is not to say, of course, that the forum selection clause is unenforceable.  Two statutory procedures exist for challenging the forum.  Code Civil Procedure section 418.10, subdivision (a)(2) authorizes a motion to dismiss on the ground of inconvenient forum, and Code of Civil Procedure section section 410.30, subdivision (a) provides that a court may dismiss an action “in whole or in part on any conditions that may be just” where “in the interest of substantial justice an action should be heard in a forum outside this state.”