Venue Clauses and Fiduciary Duties

Venue Clauses and Fiduciary Duties

A recent decision from the Federal District Court in North Carolina provided useful guidance on a number of points including venue clauses and fiduciary duties. In this instance, while the plaintiff filed an action in state court, and then challenged the defendant’s removal to federal court, it was found that the venue clause was not violated. In addition (and there are other points perhaps of interest in the decision), it was held that claims arising out of the sale of perishable food products to a restaurant, for which payment was not made, could give rise to a claim under the Federal Perishable Agricultural Commodities Act (“PACA”), which, at least at the stage of a motion to dismiss, could support a claim for breach of fiduciary duty. Sysco Charlotte, LLC v. Comer, No. 1:18CV247, 2019 WL 1359635 (M.D. N.C. March 26, 2019).

After Sysco filed its complaint against certain LLCs and the guarantors of a line of credit that have been used to purchase food, but which had not been satisfied, the action was removed to federal court. Here considering a motion to remand on the basis that the venue clause of the subject agreements did not permit removal, the court parsed the language of the agreement. In this instance, it read:

The parties agree to designate the federal and state courts of North Carolina as the exclusive place of venue and jurisdiction for any dispute between them, and Customer waives any right Customer may have to transfer or change venue regarding Customer’s obligations to Sysco ... Applicant and guarantors agree to waive exemptions from execution and agree that venue shall be proper in any forum selected by Sysco.

The personal guarantees executed in connection with the line of credit contained a similar language.

 

While acknowledging that contractual forum selection causes are enforceable absent fraud or bad faith, the burden of proving that the transfer of the case to federal court was improper would lie with Sysco, it alleging it was enforcing the clause and citing prior law to the effect that the forum selection clause blocking removal is in the nature of an affirmative defense. Characterizing the clause here at issue as being “permissive,” it was held that the transfer to federal court was not a change of venue, and that a transfer between the federal and state courts of North Carolina was not precluded by the contractual language.

From there, and in determining that the court would have jurisdiction pursuant to the PACA, one question addressed, here at the stage of a motion to dismiss, was whether a claim for breach of fiduciary duty could stand. Finding that the proceeds of the sale must be held in trust pursuant to 7 U.S.C § 499(e)(c)(2), the court "Finds Plaintiff’s allegation sufficient to plausibly infer that Plaintiff was entitled to the PACA statutory protections, which impose a fiduciary duty upon the PACA trustee."