The Maryland Court of Special Appeals handed down an opinion yesterday in which it held that the ownership of undeveloped land in Maryland is not enough to obtain personal jurisdiction over foreign residents. At the same time, the Court noted that a forum selection clause requiring the parties to submit to the jurisdiction of “any” state or territory within the United States could be invalid as overbroad.
In Cappel v. Riaso, LLC, 2011 WL 356100 (Md. App. Feb. 7, 2011), the Cappels’ company, Monroe LP, took out a loan from the Riaso, LLP. To secure the loan, the Cappels were required to enter into personal guarantee agreements in which they consented to the entry of a confessed judgment against them in the event of Monroe LP's default. The guarantee agreements were executed in Virginia and contained a forum selection clause, which required the Cappels to appear “in any court of competent jurisdiction in the State of Virginia or any other State or Territory of the United States” to confess judgment.
After Monroe LP defaulted on the loan, Riaso filed a complaint for confessed judgment against the Cappels in Maryland state court. The Cappels, as D.C. residents who were served with the complaint in D.C., argued that the court lacked personal jurisdiction over them. The Circuit Court rejected this argument, concluding that the Cappels’ ownership of undeveloped property in Maryland provided adequate contacts with the state for the court to exercise personal jurisdiction. The Court of Special Appeals reversed on appeal, holding that the ownership of undeveloped property did not constitute the “minimum contacts” necessary to satisfy the Due Process Clause for the exercise of personal jurisdiction. Further, the Special Appeals Court noted that the forum selection clause in the personal guarantee agreements requiring the Cappels to appear in “any court of competent jurisdiction in the State of Virginia or any other State or Territory of the United States” could be too broad to constitute a waiver of personal jurisdiction in Maryland; ultimately, however, the Court did not decide the issue because Riaso never raised the forum selection clause as a basis for personal jurisdiction.
The Cappel case illustrates the importance of including a narrowly defined forum selection clause with a clear waiver of personal jurisdiction in any contract to be enforced in Maryland. Maryland courts generally view forum selection clauses as presumptively enforceable, but this case highlights the risk that a clause requiring the parties to submit to the jurisdiction of any state or territory in the United States could be construed as overbroad, and therefore invalid in Maryland. To increase the likelihood that a forum selection clause will be enforced in Maryland, contracts should include a statement to the effect that the parties (1) consent and submit to the jurisdiction and venue of Maryland courts; (2) waive all objections to such jurisdiction and venue; and (3) knowingly waive their due process rights in connection with their consent to jurisdiction and venue. This is especially important when one of the contracting parties – like the Cappels – is not a Maryland resident and may have insufficient contacts with the state for a Maryland court to exercise personal jurisdiction.