Ashwin Dandekar and Emily Hua live in California. They worked for Campbell Alliance, a biopharma consulting group, in California. Yet when Campbell Alliance sued Dandekar and Hua for violating their noncompete and confidentiality agreements, it sued them in federal court in North Carolina. And the judge in New Bern has now denied the employees’ bid to send the case back to California, meaning they will have to litigate 3,000 miles away from home. Campbell Alliance Group, Inc. v. Dandekar, No. 5:13-CV-00415-FL (Jan. 3, 2014). What gives?
A forum selection clause, that’s what. Typically, in federal court, a court has the discretion to transfer a case to any other district where it “might [otherwise] have been brought,” in order to serve “the convenience of the parties [and] the interest of justice.” 28 U.S.C. § 1404(a). In making the transfer decision, courts consider the plaintiff’s choice of forum, the residence of the parties, the convenience of parties and witnesses, and other factors that involve whether it’s easier and makes more sense to litigate a case in one location over another. But when there’s a forum selection clause – i.e., a provision in a contract that says a lawsuit over it shall be brought in a particular state – that clause can be a significant factor in the transfer analysis. Indeed, in a decision one month ago, the Supreme Court confirmed that forum-selection clauses should typically decide the issue of which federal court should hear a case. Atlantic Marine Construction Co. v. U.S. Dist. Ct. for the Dist. of Texas, No. 12-929 (Dec. 3, 2013).
And so it was in Campbell Alliance. Dandekar and Hua had signed on to employment and award agreements stating that disputes over them would be “decided exclusively by a state or federal court located in Wake County, North Carolina.” When the employees asked the federal court to transfer the case to California, they sought to work around this commitment by arguing that the agreements overreached and lacked consideration (meaning that only one side was giving up something). Because the award agreements involved equity grants, the court rejected this argument. As to the employees’ argument that litigation in North Carolina was “gravely inconvenient,” the court decided that the North Carolina forum would not deprive them of their day in court, even though travel to the state would be expensive.
Had Dandekar and Hua filed suit first – for example, filing a complaint in California for a declaratory judgment as to whether their agreements with Campbell Alliance barred their actions – the outcome might have been different. At that point, Campbell Alliance would have been the one seeking a transfer, and one suspects that a California court would have been more sympathetic to residents of that state who didn’t want to travel to North Carolina to litigate their case. Further, as our Andrew Torrez wrote in this recent National Law Journal piece, California takes a very dim view of the enforceability of noncompete agreements.
But Campbell Alliance won the race to the courthouse in North Carolina, putting Dandekar and Hua on the defensive. At least the employees will rack up some frequent-flier miles if there’s ever a trial.