Wednesday, November 14, 2012

Remand to the Trial Court to Assess Venue Clause

Remand to the Trial Court to Assess Venue Clause

      In a recent decision, the Kentucky Court of Appeals directed that, in response to a challenge to the legitimacy of a choice of venue clause, the matter be remanded to the trial court for specific findings.  Midnight Terror Productions, LLC v. Winterland, Inc., 2012 WL 5457530 (Ky. App. Nov. 9, 2012).
      Midnight Terror Productions, LLC, a Kentucky LLC, entered into a contract (the “JV Agreement”) with Winterland, a corporation based in Indiana.  The JV Agreement between Midnight Terror and Winterland contained a provision in the nature of a non-compete precluding Winterland from being involved in any similar lighting event within 50 miles of that planned between Midnight Terror and Winterland.  That contract, which contained a choice of law clause requiring that any dispute be resolved in Grant County, Indiana, in turn obligated Winterland to enter into a separate agreement (the “License Agreement”) with the Louisville/Jefferson County Metro Parks Department (“Metro Parks”).  That License Agreement provided, in the event of any dispute, for venue in a federal or state court within the Western District of Kentucky; Midnight Terror was not a party to the License Agreement.
      Seeking damages based upon Winterland’s alleged failure to complete delivery of the lighting displays by the JV Agreement’s contractual deadline as well as its participation in another lighting event alleged to violate the non-compete provision, Midnight Terror filed a breach of contract action in Jefferson Circuit Court.  In reliance upon the exclusive venue clause directing that all disputes would be heard in Grant County, Indiana, Winterland filed a motion to dismiss.  The trial court granted that motion, writing:
The terms of paragraph 16 of the agreement [the venue clause] are not unconscionable as defined in Conseco Finance Servicing Corp. v. Wilder, 47 S.W.3d 335, 341 (Ky. App. 2001) and (sic) therefore fully enforceable.  A fundamental rule of contract law holds that, absent fraud in the inducement, a written agreement duly executed by the party to be held, who had an opportunity to read it, will be enforced according to its terms.   Conseco at 341.

      Midnight Terror appealed on the basis that (i) the forum selection clause in the License Agreement between Winterland and Metro Parks should control over that in the Midnight Terror/Winterland JV Agreement and that (ii) the forum selection clause directing that disputes be resolved in Grant County, Indiana is unfair or unreasonable.  While Midnight Terror was unsuccessful on the first of these arguments, as to the second they at least lived to fight another day.

      As to the assertion that the Western District of Kentucky forum selection clause of the License Agreement between Winterland and the Metro Parks should control, the court noted that the License Agreement was separate and independent from the Winterland/Midnight Terror JV Agreement, and that the License Agreement made no reference to the other document.
There is no indication that the provisions of the License Agreement were intended to govern the contract dispute that has arisen between Midnight Terror and Winterland.  The subject matter of the License Agreement is distinct and separate from the substance of the dispute at issue.  Consequently, we hold that the forum-selection provision included in the License Agreement is neither superior to the provision in the [JV] Agreement nor is it relevant to these proceedings.
      Turning to the question of the validity forum selection clause, the court began by noting the general rule that “Forum selection clauses are presumed to be valid and enforceable in Kentucky unless the party opposing enforcement can demonstrate that circumstances render the clause unfair or unreasonable,” citing Prezocki v. Bullock Garages, Inc., 938 S.W.2d 888 (Ky. 1997).  In making that assessment, the trial court is to weigh a number of factors including:
·                    the inconvenience to the parties of holding the trial in the specified forum;
·                    the inconvenience to witnesses of holding the trial in the specified forum;
·                    the inconvenience of accessing other proof by holding the trial in the specified forum;
·                    the disparity in bargaining power that existed between the parties at the time the contract was executed; and
·                    whether the state in which the incident occurred has at least a minimal interest in the action.

      Midnight Terror cited a variety of justifications for the Court of Appeals setting aside the venue clause, including its small size, the residence of the witnesses in or near Louisville and its lack of ties to Grant County, Indiana.  It cited as well, consequent to its small size, its inability to “resist oppressive clauses included in Winterland’s contracts.”  Last, it asserted that Kentucky had the greatest interest in the action since the contract was to be performed there, and it was in Kentucky that the alleged breach took place.  Winterland, in contrast, asked the Court of Appeals to uphold the trial court’s determination that the forum selection clause is enforceable.
      Ultimately, neither party won.  Rather, the matter was remanded to the trial court for evaluation of the evidence vis-à-vis the factors informing whether or not a particular forum selection clause would be enforceable.
      In a dissent, Judge Thompson would have upheld the forum selection clause as a matter of substantive law, and additionally denied relief for failure by Midnight Terror to exercise its rights under Rule 52.02 for specific findings of fact.
It was incumbent upon the appellant [Midnight Terror] to request that the trial court make the required findings of fact as required by CR 52.02 and 52.04.  Under our Rules, the trial court does not have the burden of rendering findings of fact without a proper motion made by a party, and the trial court does not have the burden of practicing the case for either party.

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