Sbkc Service Corporation v. 1111 Prospect Partners, L.P., a California Limited Partnership William Jeffery, Iii, an Individual Kristin L. Jeffery, an Individual

Citations: 105 F.3d 578; 1997 U.S. App. LEXIS 1203Docket: 96-3104

Court: Court of Appeals for the Tenth Circuit; January 22, 1997; Federal Appellate Court

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Defendants William Jeffery, Kristin Jeffery, and 1111 Prospect Partners, L.P. appeal a district court's decision to remand a case initiated by SBKC Service Corporation in Kansas state court. The district court determined that choice of venue clauses within a deed of trust and note allowed SBKC to file the action in Wyandotte County, Kansas, and concluded that 1111 Prospect could not revoke its implicit consent to this venue, thus preventing its participation in the removal of the case to federal court as mandated by 28 U.S.C. 1446(a). The background involves 1111 Prospect's default on an $8.3 million loan secured by a property in California, which led to a foreclosure by SBKC after acquiring the note and deed of trust from Security Bank. The district court based its remand on the interpretation of a clause in the note that permitted action in Kansas for deficiency collection. It ruled that 1111 Prospect had effectively waived its right to remove the case, asserting that allowing removal would negate its prior consent to be sued in Kansas. The appellate court, however, found that the terms of the note did not prohibit removal and reversed the district court's decision.

SBKC contends that the district court's order remanding the case is not reviewable because it was based on a procedural defect related to the unanimity requirement outlined in 28 U.S.C. § 1446. SBKC asserts that such procedural defects fall under the removal bases specified in 28 U.S.C. § 1447(c), thus barring review under § 1447(d). Additionally, SBKC differentiates this case from others where remands were based on non-statutory grounds, arguing that the presence of a statutory ground in this case further restricts appellate jurisdiction.

The appealability of a remand order hinges on whether the district court's decision can be reviewed. According to 28 U.S.C. § 1447(d), remands to state court are generally not reviewable, except in civil rights cases. The Supreme Court's interpretation in Thermtron Products v. Hermansdorfer clarifies that only remands due to lack of subject matter jurisdiction or removal procedure defects are immune to review. Conversely, remands based on non-jurisdictional merits are appealable.

In Milk 'N' More, the Tenth Circuit found a remand based on a forum selection clause appealable under the collateral order doctrine, as it did not fall under § 1447(c). This aligns with other circuits that have similarly ruled that remands based on venue clauses are reviewable, emphasizing that such decisions involve substantive merits rather than procedural issues. Courts have sometimes looked beyond the district court's stated reasons for remand to assess the substantive basis for the decision, supporting the right to appeal on merits.

Jurisdiction in this case mirrors the precedent set in Milk 'N' More, with all defendants participating in the removal process. The "procedural defect" identified by the district court stemmed solely from its determination that the choice of venue clauses invalidated 1111 Prospect's consent to removal. Public policy favors acknowledging jurisdiction over the district court's remand order to prevent courts from evading review by framing remands as contract interpretations that negate consent to removal. Not recognizing jurisdiction could undermine the appeal rights concerning district court contract interpretations, contradicting Milk 'N' More's stance on the reviewability of forum selection clauses.

Defendants argue that permissive forum selection clauses do not forfeit the right to removal, suggesting that Kansas law should define the clause's nature due to the diversity basis of jurisdiction and absence of federal statute. They assert the clause is permissive, referencing Thompson v. Founders Group International as precedent. While agreeing with the defendants' position, the conclusion is reached differently: contract interpretation is reviewed de novo, and the case aligns more closely with Thompson than Milk 'N' More due to factual distinctions.

The language used in the clause, specifically "may be maintained in the State of Kansas and the County of Wyandotte," indicates permissiveness rather than exclusivity, allowing for litigation outside Wyandotte County. This interpretation aligns with the Kansas Court of Appeals' analysis in Thompson, which concluded similar language designated proper venues without restricting litigation to those locations. The comparison highlights that the clause in Milk 'N' More explicitly intended to limit litigation to a specific county, unlike the current case, where the language suggests a broader allowance for venue.

The Milk 'N' More panel likely would have reached a different decision had it considered the specific language used by the parties in this case, as its ruling enforced the agreement as written. The Thompson court also would have made a different finding if it had interpreted a clause demonstrating a clear intent to restrict action filings to a specific Kansas court. The analysis emphasizes that focusing on the parties' language and intent negates the need to differentiate between mandatory and permissive venue selection clauses, and there is no necessity to determine whether federal common law or Kansas law applies since the outcome would remain consistent.

The interpretation distinguishes between general clauses and "forum selection clauses," asserting that the latter should only apply to agreements that clearly restrict litigation to specific courts. The analysis does not conflict with precedent that mandates enforcement of forum selection clauses unless unreasonable.

The critical factor for enforcing a venue provision is whether the parties intended to limit actions to a specific court exclusively. In this case, the agreement did not meet that test, allowing the defendants the right to remove the action under 28 U.S.C. § 1446. Consequently, the district court's decision to divest jurisdiction was deemed improper, leading to a reversal of the remand order and a directive for further proceedings. Additionally, a clause in the deed of trust indicating the District Court of Wyandotte County's jurisdiction does not exclusively limit action filings to that venue, sharing the same limitations as the note’s clause.