Venue Selection in Operating Agreements

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Venue Selection in Operating Agreements

Venue Selection in Operating AgreementsA recent opinion out of Florida’s Fourth District Court of Appeals provides wide breadth for enforcement of contractual venue selection clauses.

Carl Powers, Jr. and John Melick entered into an operating agreement governing their Florida business, Deeazbros, LLC. In 2016, Powers filed suit against Melick alleging that he diverted monies owed to the business to himself. (Powers v. Melick, No. 4D16-2904 (Fla. 4th DCA Feb. 1, 2017).)

Powers filed the complaint in Martin County Circuit Court alleging that the LLC’s principal offices were located there. Melick moved to dismiss the complaint for improper venue (or to transfer the case to Palm Beach County) alleging that (1) he resided in Miami-Dade County; (2) Powers resided in Palm Beach County; (3) the claims accrued in Palm Beach County; (4) he had already filed suit in Palm Beach County for dissolution of the same LLC; and (5) the LLC’s principal office was located in Palm Beach County. Melick also raised forum non-conveniens arguments.

The specific language in the operating agreement regarding venue read, in pertinent part:

“. . . Each party hereto irrevocably agrees that any legal action or proceeding arising out of or in connection with this Agreement may be brought in any state or federal court located in Florida… and each party agrees not to assert… any claim that it is not subject personally to the jurisdiction of such court, that the action, suit or proceeding is brought in an inconvenient forum, that the venue of the action, suit or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and hereby agrees not to challenge such jurisdiction or venue by reason of any offsets or counterclaims in any such action, suit or proceeding.”

Ultimately, the trial court ruled that the venue selection clause was unenforceable and transferred the case to Palm Beach County Circuit Court. Powers appealed.

On appeal, the Fourth Circuit articulated the well-settled principle that parties to a contract are permitted to provide for venue. Citing a Third District case, the court reasoned that parties to a contract also hold the right to waive venue privileges that are based on statute or convenience. The court did, however, include language in the opinion that enforcement of the parties’ contractual provision must be “reasonable and just.” Still, the court reversed the lower court’s decision.

For businesses in the midst of drafting their operating agreements, this case provides an archetype for the considerations that must go into deciding on appropriate venue selection clauses.

Under the venue selection clause here, one party could have filed suit in the totally unrelated County of Broward and required the other party to travel there defend the suit (as long as enforcement was reasonable and just). An agreement this wide in scope leaves open the possibility that parties or offices could later be located in different areas of the state and the agreement would not need to be modified to alter a more specific venue selection clause.

A more limited venue selection clause, on the other hand, may restrict aggrieved parties from filing suit in a location that is convenient for them and require those parties to travel to a particular inconvenient location in order to enforce their rights under the agreement.

Ultimately, the language that will work best for your business involves a balancing of many factors. It is imperative that you seek the advice of experienced professionals who understand the myriad possible outcomes of utilizing particular language in contracts, including operating agreements. To work with an attorney from Yeboah Law Group, please call 800.835.5726, or fill out our contact form. We help business owners in Miami, Ft. Lauderdale and throughout South Florida.

 

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