Contracts often include a forum selection clause to designate the location of any future litigation between the parties. A recent Ohio case illustrates the application of a forum selection clause. See Down-Lite International, Inc. v. Chad Altbaier, No. 1:19cv627, 2019 WL 3562068 (S.D. Ohio Aug. 6, 2019) (slip op.) In that case, a federal magistrate judge denied defendant’s motion to transfer venue from Ohio to California largely because the parties’ forum selection clause designated Ohio as the venue for disputes.
In Down-Lite, defendant Chad Altbaier worked for Down-Lite International primarily from his home in California. Down-Lite is a family owned corporation with its principal place of business in Ohio. At the time of his employment, Mr. Altbaier entered into various agreements with Down-Lite that contained non-compete and non-solicitation provisions as well as a forum selection clause requiring that all claims between the parties be brought in a court located in Hamilton County, Ohio.
After resigning from his position at Down-Lite, Mr. Altbaier formed his own competitor company in California. Down-Lite brought suit against Mr. Altbaier in Ohio claiming he violated his non-compete and non-solicitation agreements.
Mr. Altbaier responded by seeking a venue transfer to California, claiming the agreement was unenforceable in light of California law prohibiting the requirement of any employee “as a condition of employment, to agree to a provision that would require the employee to adjudicate outside of California a claim arising in California.” The Ohio court rejected Mr. Altbaier’s argument, noting that “a valid forum-selection clause almost always controls the outcome of a motion to transfer venue.”
Mr. Altbaier then argued that a transfer of venue was proper because hearing the case in Ohio would be expensive and have a negative impact on his business by forcing him to leave California. The Ohio court responded by acknowledging that Ohio may not be “ideal” for Mr. Altbaier, but nevertheless denied his motion. In doing so, the court further noted that Ohio is the better venue because it is Down-Lite’s principal place of business and the location of hundreds of employees including its CEO and most of its officers and shareholders.
Down-Lite’s holding illustrates that courts tend to enforce forum selection clauses unless there is a compelling showing of prejudice to the party opposing the agreed-upon forum.
So, what is the lesson of Down-Lite? When a family business is drafting and negotiating agreements between the company and shareholders and employees, it is wise to include a mandatory forum selection clause to ensure that any subsequent litigation involving the contract occurs in the area where the business and its owners reside. Otherwise, the business may be forced to litigate in an inconvenient, distant forum.