437 F.3d 606 (7th Cir. 2006), 05-1720, IFC Credit Corp. v. Aliano Bros. General Contractors, Inc.

Docket Nº:05-1720.
Citation:437 F.3d 606
Party Name:IFC CREDIT CORPORATION Plaintiff-Appellant, v. ALIANO BROTHERS GENERAL CONTRACTORS, INC., et al., Defendants-Appellees.
Case Date:February 01, 2006
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

Page 606

437 F.3d 606 (7th Cir. 2006)




No. 05-1720.

United States Court of Appeals, Seventh Circuit

February 1, 2006

Argued Jan. 4, 2006.

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 04 C 6504 – John W. Darrah, Judge.

Page 607

Vincent Thomas Borst (argued), D. Alexander Darcy, D. Ann Coker, Debra R. Devassy, Askounis & Borst, Chicago, IL, for Plaintiff-Appellant.

Colleen E. Helenhouse (argued), McGuirewoods, Chicago, IL, for Defendant-Appellee.

Before Posner, Evans, and Williams, Circuit Judges.

Posner, Circuit Judge.

We are asked to decide the validity of a forum selection clause that appears in the following provision of a contract between NorVergence, Inc. and Aliano (our collective name for the two defendants – a corporation and one of its co-owners, who personally guaranteed the corporation's debts):

This agreement shall be governed by, construed and enforced in accordance with the laws of the State in which Rentor's principal offices are located or, if this Lease is assigned by Rentor, the State in which the assignee's principal offices are located, without regard to such State's choice of law considerations and all legal actions relating to this Lease shall be venued exclusively in a state or federal court located within that State, such court to be chosen at Rentor or Rentor's assignee's sole option. You hereby waive right to a trial by jury in any lawsuit in any way relating to this rental.

The contract is for the lease of telecommunications equipment by NorVergence to Aliano, a construction company, for five years at an annual rental of about $20,000. The contract authorizes NorVergence to assign the contract – and note that in the provision quoted above, Aliano consents to be sued in state or federal court either in the state in which NorVergence had its headquarters (New Jersey, which is also Aliano's state), or, if NorVergence assigns the contract, in a state or federal court in the state in which the assignee is headquartered.

As soon as Aliano signed the contract, NorVergence assigned it to IFC, the plaintiff, which is headquartered in Illinois. Aliano defaulted on its lease payments, and IFC brought this diversity suit in a federal district court in Illinois to collect them. Aliano moved to dismiss the suit for lack of personal jurisdiction, as Aliano has no presence in Illinois or other contacts with the state. The judge granted the motion on the ground that the forum selection clause is invalid and so is not an effective waiver of Aliano's objection to personal jurisdiction. IFC appeals the dismissal of its suit. The assignee of many of NorVergence's leases, IFC has been involved in a number of lawsuits in different state and federal courts in which the validity of the same forum selection clause has been challenged. The courts have divided over its validity, but with the tide running against. Compare IFC Credit Corp. v. Burton Industries, Inc., No. 04 C 5906, 2005 WL 1243404, at *2-3 (N.D. Ill. May 12, 2005), upholding its validity, with IFC Credit Corp. v. Warner Robbins Supply Co., No. 04 C 6093, 2005 U.S. Dist. LEXIS 26450, at *9-11 (N.D. Ill. Oct. 26, 2005);

Page 608

IFC Credit Corp. v. Century Realty Funds, Inc., No. 04 C 5908, slip op. at 7-8 (N.D. Ill. Mar. 4, 2005); IFC v. South Coast Dental Labs, No. 04 M3 2646, slip op. at 15-21 (Ill. Cook Cty. Cir. Ct. June 21, 2005); IFC v. Main Street Mortgage, No. 04 M3 2649, slip op. at 15-19 (Ill. Cook Cty. Cir. Ct. Mar. 30, 2005), and IFC v. Thomas Printing, Inc., No. 04 M3 2654, slip op. at 2-4 (Ill. Cook Cty. Cir. Ct. Mar. 17, 2005), all holding it invalid, and with IFC Credit Corp. v. Kay Automotive Distributors, Inc., No. 04-5907, slip op. at 1-2 (N.D. Ill. June 13, 2005); IFC Credit Corp. v. Austin Automotive Warehouse Corp., No. 04-8030, slip op. at 2-4 (N.D. Ill. Apr. 6, 2005), and IFC Credit Corp. v. Eastcom, Inc., 2005 WL 43159, at *1-3 (N.D. Ill. Jan. 7, 2005), expressing skepticism about its validity. The decisions that hold the clause invalid or express skepticism about its validity invariably do so on the ground that the clause is not specific; that is incorrect, as we shall see.

A threshold question is whether federal or state law governs the issue of validity. Had the district judge been asked to transfer the case to the federal district court in New Jersey, where IFC could obtain personal jurisdiction over Aliano without having to rely on the forum selection clause, the validity of the clause would plainly be governed by federal law. For in Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22 (1988), the Supreme Court held that even in a diversity case the federal forum non conveniens statute, 28 U.S.C. § 1404(a), in providing that "for the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought," allows the federal district court to give weight to a forum selection clause whether or not the clause would be deemed valid by the state in which the suit was brought. Stewart tells the district court to consider the policy behind the state's judgment of validity or invalidity because that policy would bear on whether transferring the case would be "in the interest of justice," but to make an independent judgment whether to enforce the clause and therefore refuse to transfer. 487 U.S. at 30-31; Northwestern National Ins. Co. v. Donovan, 916 F.2d 372, 373-74 (7th Cir. 1990); Jumara v. State Farm Ins. Co., 55 F.3d 873, 877-78 (3d Cir. 1995).

But in this case there was no transfer order, hence no occasion to apply section 1404(a). Should that change the result? If the dismissal of the suit stands, IFC will refile it in New Jersey, just as if a transfer order had been issued. If the suit belongs in Illinois, in the sense that had a motion to transfer been filed it should have been denied, the suit belongs in this state, one might think, whether or not such a motion is filed.

A court system has an independent interest in deciding which court in the system shall hear which cases, to minimize imbalances in workload. Stewart Organization, Inc. v. Ricoh Corp., supra, 487 U.S. at 30-31. Shall it be a federal district court in Illinois or the one in New Jersey? As Justice Kennedy emphasized in his concurrence in Stewart, 487 U.S. at 33, and later cases confirm as we are about to see, federal courts are friendly to the use of forum selection clauses to determine which federal district court shall host a case. That policy might well seem as applicable to the present case as to one in which a motion to transfer is filed, though dismissal and transfer do not have identical effects. Dismissal is appealable, transfer not; the choice of law rules are different; and of

Page 609

particular relevance to the present discussion, if the dismissal of IFC's suit stands, IFC might decide to refile the suit in a New Jersey state court rather than in the federal court in New Jersey.

Several of the federal circuits have concluded that federal law indeed governs the validity of forum selection clauses (even) in diversity suits not involving a motion under section 1404(a). E.g., Jumara v. State Farm Ins. Co., supra, 55 F.3d at 877-78; Jones v. Weibrecht, 901 F.2d 17, 19 (2d Cir. 1991); Manetti-Farrow, Inc. v. Gucci America, Inc., 858 F.2d 509, 513 (9th Cir. 1988). But none of them has considered whether their conclusion should hold when the clause is invoked, as in this case, in an attempt to obtain personal jurisdiction that would otherwise be unobtainable. Other courts, including our own, have reserved the question whether federal law governs other than in the specific context exemplified by the Stewart case, that is, other than in cases in which the determination of validity is incidental to the application of the forum non conveniens statute. E.g., Northwestern National Ins. Co. v. Donovan, supra, 916 F.2d at 373-74; Rainforest Cafe, Inc. v. Eklec Co, L.L.C., 340 F.3d 544, 546 (8th Cir. 2003).

When as in the present case the issue is not the convenience of the forum selected by the plaintiff but whether the forum has personal jurisdiction over the defendant by virtue of a forum selection clause, application of federal law would collide with the countless decisions that hold that in a diversity case a federal court has personal jurisdiction over a defendant "only if a court of the state in which [the federal court] sits would have jurisdiction." Purdue Research Foundation v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 779 (7th Cir. 2003); to the same effect, see, e.g., Hyatt...

To continue reading