Forum Selection Clause, Domesticating a Judgment, and the West Lafayette Pita Pit
On August 26, 2015, the Indiana Court of Appeals issued a memorandum decision in the case of Running Man, LLC v. Nagy and Sak (pdf). (See also, this predecessor memorandum decision issued in 2010). Running Man, LLC is an Indiana limited liability corporation with a registered address in Muncie. The Nagsak Company of West Lafayette, Inc. was, I believe, an Indiana corporation based in Kalamazoo, Michigan but which owned a Pita Pit franchise store located in the Chauncey Hill Mall in West Lafayette, Indiana. Nagsak has since dissolved and its owners, Nagy and Sak, have become its successors in interest.
In 2008, Runningman signed a contract to purchase the Pita Pit. The contract included, significantly, a forum selection clause indicating that all contract-related litigation be conducted in Michigan. In 2009, Runningman attempted to sue Nagsak for breach of contract but that suit was thrown out due to the forum selection cause. Sometime after that, Nag and Sak, as successors in interest to Nagasak, filed suit in Michigan against Runningman for breach of contract. Runningman initially had an attorney appear and defend against the suit, but later the attorney withdrew, Runningman stopped defending in Michigan, and judgment was entered against Runningman for about $75,000.
After getting the Michigan judgment, Nag and Sak, filed an action in Indiana to domesticate the Michigan judgment. The point of domesticating a judgment in another state is to reach assets available in that state. The strategic advantage is that the judgment debtor’s ability to challenge the domestication is very limited. The primary challenges are that the court issuing the judgment did not, itself, have subject matter jurisdiction or it did not have personal jurisdiction over a judgment debtor. If the foreign court had jurisdiction, then, at the domestication stage, you do not have the opportunity to challenge whether the foreign court was correct that you did, in fact, owe the debt.
Lack of subject matter jurisdiction would be rare, particularly in a contract claim. Most state courts are going to have subject matter jurisdiction to hear a claim based in contract. Personal jurisdiction can be a lot trickier. I won’t go too deep into the rabbit hole at this point, but the judgment debtor generally has to have certain minimum contacts with the forum state where the underlying judgment was issued such that it’s reasonable to expect the defendant to be hauled into court in that state. Runningman protested the existence of personal jurisdiction, but it’s tough to say you did not expect to be hauled into court in a state when there is a contract where you specifically agree that litigation over a contract will take place in that state.
The upshot is that forum selection clauses can be leveraged to obtain judgments because it is easier for you to litigate in a particular forum and harder for the defendant to litigate. You can then domesticate the judgment when it is time to pursue assets to satisfy the judgment. On the flip side, when signing a contract, you should be very cautious about forum selection clauses that designate a location where it will be difficult for you to litigate. Some times, there is no helping it because the person demanding the other foreign has all of the leverage in the contract negotiation. But, if you can designate a forum close to home or elimination of the forum selection clause altogether, you should try to do so.