• The Advantages and Enforceability of Forum Selection Clauses
  • May 8, 2013 | Author: Nicole Necklas Soraruf
  • Law Firm: Lerch, Early & Brewer, Chartered - Bethesda Office
  • Loan documents not only document a loan to a borrower but also govern what will happen if that borrower defaults and the lender must sue the borrower. Several aspects of such a lawsuit can and should be addressed in the loan documents. One of the important provisions is the forum selection clause.

    By including a forum selection clause in loan documents, the lender and borrower agree in advance the state (and even county) in which either can bring a lawsuit. A forum selection clause is important to the lender for many reasons. It brings certainty as to where the lawsuit will be brought. It helps reduce the costs of litigation because it reduces a borrower’s ability to contest a court’s venue or jurisdiction. Also, a lender may want a particular court because it previously has interpreted the lender’s loan documents or it is a convenient location. In any event, the forum selection clause, along with the choice of law provision and jury waive,r is a tool available to the lender to help facilitate and plan for a lawsuit against a defaulting borrower.

    Although the validity of a forum selection clause in loan documents or contracts between parties has been challenged, courts generally have held that such clauses are enforceable unless such a selection would be unreasonable. A recent Georgia case illustrates how courts today view the forum selection clause.

    In Park Ave. Bank v. Steamboat City Development Company, L.P., a Georgia appellate court reversed a trial court’s decision and upheld a forum selection clause in loan documents. In October 2007, The Park Avenue Bank loaned Steamboat City Development Company, L.P. $6.57 million. In connection with the loan, Steamboat, the bank, and the guarantors entered into a loan agreement that contained a forum selection clause.

    The forum selection clause in the loan agreement was comprehensive and stated:

    “Except as may be required under the foreclosure provision contained within the Security Deed, each of Lender, Borrower, and Guarantor, to the fullest extent permitted by law, hereby knowingly, intentionally, and voluntarily, with and upon the advice of competent counsel, (i) submits to personal, nonexclusive jurisdiction in the State of Georgia with respect to any suit, action or proceeding by any person arising from, relating to, or in connection with such Loan Document or the Loan, (ii) agrees that any such suit, action or proceeding may be brought in any state or federal court of competent jurisdiction sitting in Lowndes County, Georgia, and (iii) submits to the jurisdiction of such courts. Each of Borrower and Guarantor, to the fullest extent permitted by law, hereby knowingly, intentionally and voluntarily, with and upon the advice of competent counsel, further agrees that it will not bring any action, suit, or proceeding in any forum other than Lowndes County, Georgia (but nothing herein shall affect the right of Lender to bring any action, suit, or proceeding in any other forum), and irrevocably agrees not to assert any objection which it may ever have to the laying of venue of any such suit, action, or proceeding in any federal or state court located in Georgia and any claim that any such action, suit, or proceeding brought in any such court has been brought in an inconvenient forum.”

    In 2008, Steamboat executed an amended and restated promissory note and each guarantor signed reaffirmations of guaranties. The amended and restated promissory note provided that, “[a]ny suit, action or proceeding against Borrower hereof may, at the sole option of Lender, be brought in any State of [sic] Federal court of competent jurisdiction, for the enforcement of this Amended and Restated Promissory Note or any remedy hereunder, and Borrower hereby consents to the nonexclusive jurisdiction of such court and waive [sic] any right or privilege to require that any such action be brought in any other jurisdiction or venue.”

    In May 2010, the bank filed a lawsuit against Steamboat and the guarantors in Lowndes County Superior Court, alleging breach of the loan documents. In response, the defendants then filed a joint motion to transfer venue, contending among other things, that “the forum selection clause in the Loan Agreement was unconstitutional, contrary to public policy and unenforceable.”

    In its analysis of the forum selection clause, the court first noted that the additional forum selection provision in the amended and restated note did not limit the provision in the loan documents. The court noted “[o]ne of the most well-established rules of contract interpretation is that ‘the whole contract should be looked to in arriving at the construction of any part.’” When viewing the loan documents as a whole, the court found it evident that they all were subject to the forum selection provision found in the loan agreement and that Lowndes County was “the agreed upon venue for any suit other than a foreclosure proceeding.” Furthermore, it found that the forum selection clause in the amended and restated promissory note was not inconsistent with the clause in the loan agreement and “if anything [it] broadened the choices of the Lender to any state or federal ‘court of competent jurisdiction,’ of which Lowndes County Superior Court is one.” The court then noted that Georgia has adopted the United States Supreme Court’s standard for analyzing forum selection clauses and that such clauses “are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be ‘unreasonable’ under the circumstances.” The court held that since no such showing was made, the trial court erred in ruling the clause unenforceable.

    This case is cited as Park Ave. Bank v. Steamboat City Dev. Co., L.P., et al., 728 S.E.2d 925 (Ga. Ct. App. 2012).