840 F.2d 249 (4th Cir. 1988), 87-2514, Sterling Forest Associates, Ltd. v. Barnett-Range Corp.

Docket Nº:87-2514.
Citation:840 F.2d 249
Party Name:STERLING FOREST ASSOCIATES, LTD., a Georgia limited partnership, Plaintiff- Appellee, v. BARNETT-RANGE CORPORATION, a corporation; Hal W. Barnett, a natural person; James E. Range, a natural person, Defendants-Appellants, and Far West Savings and Loan Association, a banking association, Defendant.
Case Date:February 26, 1988
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
 
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Page 249

840 F.2d 249 (4th Cir. 1988)

STERLING FOREST ASSOCIATES, LTD., a Georgia limited

partnership, Plaintiff- Appellee,

v.

BARNETT-RANGE CORPORATION, a corporation; Hal W. Barnett, a

natural person; James E. Range, a natural person,

Defendants-Appellants,

and

Far West Savings and Loan Association, a banking

association, Defendant.

No. 87-2514.

United States Court of Appeals, Fourth Circuit

February 26, 1988

Argued May 6, 1987.

Page 250

David Paul Sousa (Joseph C. Moore, Jr., Young, Moore, Henderson & Alvis, P.A., Raleigh, N.C., on brief), for defendants-appellants.

John Carl Schafer, Charles Gordon Brown (Faison, Brown, Fletcher & Brough, Durham, N.C., on brief), for plaintiff-appellee.

Before RUSSELL and WILKINS, Circuit Judges, and VAN GRAAFEILAND, Senior Circuit Judge for the Second Circuit, sitting by designation.

VAN GRAAFEILAND, Senior Circuit Judge, Sitting by Designation:

This is an appeal from an order of the United States District Court for the Eastern District of North Carolina, 673 F.Supp. 1394, Boyle, J., denying enforcement of a forum selection clause in a Purchase Agreement that was drafted in California. The Agreement provided that Sterling Forest Associates, Ltd. (Sterling), a Georgia limited partnership, would purchase a tract of land in North Carolina, and Barnett-Range Corporation (Barnett), a California corporation, would build an apartment complex on it. Differences arose, with the result that Sterling brought this action in North Carolina and Barnett then sued Sterling in California. The portion of the Purchase Agreement with which we are concerned reads as follows:

This Agreement shall be construed and enforced in accordance with the laws of the State of California and the parties agree that in any dispute jurisdiction and venue shall be in California.

Relying on this clause, Barnett moved pursuant to 28 U.S.C. Sec. 1404 to have this action transferred to the United States District Court for the Eastern District of California. When its motion was denied, Barnett appealed.

Prior to the Supreme Court's decision in The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), the majority rule in American courts was that forum selection clauses were invalid and unenforceable. 56 A.L.R.2d

Page 251

300, 306. The reasons generally given for these holdings were that enforcement would deprive a court of jurisdiction vested in it by law and would be contrary to public policy. Id. at 311-12. Rejecting this reasoning, the Bremen Court held that forum selection clauses are prima facie valid and should be enforced when made in arms-length transactions by sophisticated businessmen, absent some compelling and countervailing reason. 407 U.S. at 9-12, 92 S.Ct. at 1912-14.

This Court has expressed its adherence to the Bremen rule on several occasions, recognizing as it did so that the rule is applicable to domestic commercial cases. See, e.g., Bryant Electric Co. v. City of Fredericksburg, 762 F.2d 1192, 1196-97 (4th Cir.1985); Mercury Coal & Coke, Inc. v. Mannesmann Pipe and Steel Corp., 696 F.2d 315, 317-18 (4th Cir.1982). California also follows Bremen. Smith, Valentino & Smith, Inc. v. Superior Court of Los Angeles County, 17 Cal.3d 491, 495-96, 131 Cal.Rptr. 374, 551 P.2d 1206 (1976). Under North Carolina law, the law of the place where the contract was made determines its validity, its exposition and its consequences. Fast v. Gulley, 271 N.C. 208, 211, 155 S.E.2d 507 (1967); see Wallace Butts Ins. Agency, Inc. v. Runge, 68 N.C.App. 196, 314 S.E.2d 293, 295 (1984). This is particularly true where, as in the instant case, the contract itself provides that it shall be governed by the same law. Kaplan v. RCA Corp., 783 F.2d 463, 465 (4th Cir.1986). Accordingly, whether the forum selection clause is treated as procedural or substantive, Sun World Lines, Ltd. v. March Shipping Corp., 801 F.2d 1066, 1068-69 (8th Cir.1986), the principles articulated in Bremen should be applied.

In Mercury Coal & Coke, Inc. v. Mannesmann Pipe...

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