August 8, 2019

A Brief Lesson in Contract Construction; O’Bryant v. Adams

Category: Indianapolis Law Club | Author: | Share:

As lawyers, we can frequently outthink ourselves, creating issues where none really exist. And that’s apparently what happened in this case. The Court clarified things in this case by giving us all a lesson in how to construe a contract.

Two trucking companies, O’Bryant Transport and A.L.A. Trucking, signed an independent-contractor agreement in Indiana. That agreement contained the following forum-election clause:

This Agreement shall be deemed to have been drawn in accordance with the statutes and laws of the State of Texas and in the event of any disagreement or litigation, the laws of this state shall apply and suit must be brought in this state, except that CARRIER [A.L.A. Trucking] may bring suit against INDEPENDENT CONTRACTOR [O’Bryant Transport] in any state where INDEPENDENT CONTRACTOR resides or is located.

O’Bryant subsequently filed a lawsuit against A.L.A. Trucking in Marion County, Indiana, alleging breach of contract and fraudulent inducement. The defendants moved to dismiss under Trial Rule 12(B)(2), asserting that the forum selection clause prevented the court from exercising personal jurisdiction over the defendants. The defendants also moved to dismiss under Rule 12(B)(6). O’Bryant argued that the phrase “this state” within the forum-selection clause refers not to Texas but Indiana (where the agreement was signed), but the trial court disagreed and granted a dismissal without prejudice under Rule 12(B)(2). That decision was affirmed by the Court of Appeals.

On transfer, the Court disagreed with O’Bryant. “This state” referred to Texas because:

  • It was the only state referenced in the paragraph;
  • Other sections in the agreement mentioned Indiana, but this one did not; and
  • The ejusem generis canon, which the Court described as “where general words follow an enumeration of two or more things, they apply only to persons or things of the same general kind or class specifically mentioned.”

Suppose, for example, an invitation to a party says the menu will consist of “hamburgers, hot dogs, and other like food.” Under common usage, we expect “other like food” to be defined with reference to the foods listed. Hamburgers and hot dogs are casual foods, inexpensive, and easy to prepare. Because they “all belong to an obvious and readily identifiable genus”, we expect that “the speaker or writer has that category in mind for the entire passage.” Given the invitation’s list of specified foods, it would come as little surprise if the host also served baked beans and potato salad. But no one would expect the menu to include lobster thermidor or pheasant under glass.

Here, the disputed contract contains no antecedent list of other items to which the reader can refer to interpret the meaning of “this state”. Just as it takes two points to determine a line in geometry, it takes at least two items within a list to establish a pattern from which a generic catch-all phrase at the end of the list can be interpreted under the ejusdem generis canon. Stated differently, the canon applies only to the following format—“A, B, [C, etc.] and other like items”—which is not present here.

Nevertheless, the Court concluded that the trial court erred when dismissing the complaint for lack of personal jurisdiction.

[A] valid forum-selection clause does not divest a trial court of personal jurisdiction over parties otherwise subject to the court’s jurisdiction. Parties are free to consent to having their disputes litigated in a forum in which they would not otherwise be amenable to suit. And when they elect to do so, as here, they submit to the personal jurisdiction of the distant forum. But by consenting to personal jurisdiction in a different forum, they do not thereby deprive other jurisdictions—such as those where they live and do business—of personal jurisdiction, too.

But what the Court takes away with one hand, it gives with the other. While the Court held that a case could not be dismissed under Rule 12(B)(2) for a lack of personal jurisdiction, there is an alternative motion for enforcing a forum-selection clause.

One option is for the defendant to file a stand-alone motion to enforce a forum-selection clause, arguing the parties’ written agreement requires their dispute to be litigated elsewhere. The motion should recite the clause within the motion’s four corners or attach it as a separate document if it is not part of the complaint. Unless the plaintiff contests the clause’s enforceability, the court can interpret the clause and dismiss the complaint without prejudice if the plaintiff sued in an unauthorized forum. If the plaintiff contests the clause’s validity—alleging it to be, say, unfair or the product of unequal bargaining power—the court may need to hold a minitrial to resolve factual disputes on the threshold question of the clause’s enforceability. Such a limited trial is necessarily antecedent to deciding what the clause means and whether dismissal is required to effectuate its meaning. Courts must occasionally resolve factual disputes before deciding threshold questions of subject-matter or personal jurisdiction. The same is true of facts underlying the validity of a forum-selection clause. And, as a belt-and-suspenders measure, a defendant wanting to protect itself from costly collateral litigation over the validity of a presumptively valid forumselection clause Indiana can include in its contract a requirement that the breaching party pay the costs and attorney’s fees the aggrieved party incurs to enforce the clause.

By recognizing this procedural vehicle, we do not foreclose other possible options for enforcing a forum-selection clause against a litigant that sued in an unapproved forum. Once our opinion is certified, we will ask our rules committee to consider various options for amending our rules of trial procedure to formalize a process for enforcing forum-selection clauses.

Thus, while the trial court erred when giving the grounds for its dismissal, it reached the right result, and its dismissal without prejudice was affirmed.

Lessons:

  1. The Indiana Supreme Court follows the ejusem generis canon, which applies where general words follow an enumeration of two or more things, they apply only to persons or things of the same general kind or class specifically mentioned.
  2. The existence of a forum-selection clause that requires suit in another jurisdiction does not deprive a court of personal jurisdiction over the parties.
  3. A party which seeks to enforce a forum-selection clause should follow the procedure the Court describes in this opinion.