Eleventh Circuit Upholds “Floating” Forum Selection Clause

In AFC Franchising, LLC v. Purugganan, 2022 U.S. App. LEXIS 22323 (11th Cir. Aug. 11, 2022), the Eleventh Circuit held that an individual consented to personal jurisdiction and venue by agreeing to a “floating” forum selection clause.

Danilo Purugganan entered into a “Master Developer Agreement” with Doctors Express Franchising in 2009. The parties agreed that the contract would be governed by Maryland law and that “all actions . . . between you and us must be commenced in a state or federal court of competent jurisdiction within such state or judicial district in which we have our principal place of business at the time the action is commenced, and you (and each owner) irrevocably submit to the jurisdiction of those courts and waive any objection you (or the owner) might have.” In 2013, Doctors Express Franchising assigned its interest in the agreement to AFC Franchising, LLC (“AFC”) in accordance with the agreement’s assignment clause. AFC has its principal place of business in Shelby County, Alabama.

After a dispute arose between AFC and Purugganan, Purugganan threatened to sue AFC in either Connecticut or New York. AFC sought a declaratory judgment in Alabama state court that the parties had to litigate their dispute in Alabama and that AFC had not breached the agreement. Purugganan removed to federal court and moved to dismiss for lack of personal jurisdiction and improper venue. The district court held that Purugganan had not contractually waived his personal jurisdiction defense by agreeing to the forum selection clause because there was no reference to assignees in the forum selection clause. Shortly after AFC filed suit in Alabama, Purugganan filed suit in the District of Connecticut, seeking a declaration that the agreement does not permit suit in Alabama or that the floating forum selection clause was unenforceable. AFC predictably moved to dismiss. The Connecticut district court denied the motion and declined to enforce the forum selection clause. AFC moved for reconsideration, and the Connecticut district court reaffirmed its decision not to enforce the forum selection clause. AFC also counterclaimed for a declaration that the proper venue is Alabama. Purugganan moved for judgment on the pleadings on the claim which was ultimately granted by the Connecticut district court.

In an opinion written by Judge Newsom and joined by Judges Tjoflat and Carnes, the Eleventh Circuit reversed the Alabama district court’s dismissal. The court held that Purugganan clearly waived objections to personal jurisdiction in the state or judicial district in which “we have our principal place of business at the time the action is commenced,” so the real question was who is the “we” and “our” referred to in the agreement. Because AFC was a valid assignee of Doctors Express Franchising’s rights, the court held that AFC had the right to litigate in the state or judicial district containing its principal place of business.

The court then turned to whether the forum selection clause was enforceable. The court held that Purugganan had not met his burden of showing that enforcing the floating forum selection clause would be unjust or unreasonable. Purugganan, the court noted, was a businessman who read the agreement and had an opportunity to have it reviewed by an attorney. The court also held that enforcing the clause would further the policy that parties are generally free to structure their affairs through legally binding promises.

Judge Tjoflat concurred and wrote separately to demonstrate the futility and inefficiency of seeking a declaration on the meaning of a forum selection clause when there is a parallel proceeding in another court that is imminent or ongoing. Judge Tjoflat emphasized that both parties and the Connecticut district court had already invested a great deal of time and effort into litigating in Connecticut and the Eleventh Circuit’s decision will have no binding effect on the Connecticut district court. The Connecticut district court, assuming the Northern District of Alabama grants the declaratory judgment on remand, would still need to analyze whether to give the decision preclusive effect, whether the forum selection clause is enforceable under Second Circuit precedent, and whether it should exercise its discretion to transfer the case or dismiss under the doctrine of forum non conveniens. Judge Tjoflat critiqued AFC’s litigation strategy and set out the conduct that it should have taken to conduct the litigation “in a sensible manner.” The proper course, Judge Tjoflat stated, would be to allow Purugganan to file suit wherever he wished and then moved for transfer or dismissal based on the forum selection clause.

Judge Tjoflat also lamented the effect AFC’s strategy had on the judiciary. He pointed out that it is not the job of the Northern District of Alabama or the Eleventh Circuit to decide whether the District of Connecticut should apply the forum selection clause and transfer the action to Alabama. Using a declaratory judgment action, Judge Tjoflat said, to “grade the papers” of a district court outside its circuit undermines respect for the judiciary and pushes the boundaries of federal court jurisdiction.

Posted by Rebekah Whittington.

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