Filed: Jul. 22, 2008
Latest Update: Feb. 21, 2020
Summary: FILED United States Court of Appeals Tenth Circuit July 22, 2008 UNITED STATES COURT OF APPEALS Elisabeth A. Shumaker Clerk of Court TENTH CIRCUIT JACK L. JONES; KAY A. JONES, Plaintiffs-Appellants, v. No. 07-3246 (D.C. No. 06-CV-1381-JTM) KP&H LLC, a Delaware limited (D. Kan.) liability company; KPH, LLC, a Georgia limited liability company; and BRAD PENNY, Defendants-Appellees. ORDER AND JUDGMENT * Before BRISCOE, MCKAY, and LUCERO, Circuit Judges. Plaintiffs-appellants Jack L. Jones and Kay A
Summary: FILED United States Court of Appeals Tenth Circuit July 22, 2008 UNITED STATES COURT OF APPEALS Elisabeth A. Shumaker Clerk of Court TENTH CIRCUIT JACK L. JONES; KAY A. JONES, Plaintiffs-Appellants, v. No. 07-3246 (D.C. No. 06-CV-1381-JTM) KP&H LLC, a Delaware limited (D. Kan.) liability company; KPH, LLC, a Georgia limited liability company; and BRAD PENNY, Defendants-Appellees. ORDER AND JUDGMENT * Before BRISCOE, MCKAY, and LUCERO, Circuit Judges. Plaintiffs-appellants Jack L. Jones and Kay A...
More
FILED
United States Court of Appeals
Tenth Circuit
July 22, 2008
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT
JACK L. JONES; KAY A. JONES,
Plaintiffs-Appellants,
v.
No. 07-3246
(D.C. No. 06-CV-1381-JTM)
KP&H LLC, a Delaware limited
(D. Kan.)
liability company; KPH, LLC, a
Georgia limited liability company; and
BRAD PENNY,
Defendants-Appellees.
ORDER AND JUDGMENT *
Before BRISCOE, MCKAY, and LUCERO, Circuit Judges.
Plaintiffs-appellants Jack L. Jones and Kay A. Jones (“the Jones”) filed this
breach-of-contract action in Kansas state court. Defendants-appellees KP&H,
LLC and Brad Penny removed the case to federal district court and then filed a
motion to dismiss the Jones’ claims based on a choice of venue clause in the
contract. Interpreting this clause as providing for exclusive venue in San Diego
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. This court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 32.1.
County, California, the district court granted defendants’ motion to dismiss
pursuant to Federal Rule of Civil Procedure 12(b)(3). Exercising jurisdiction
under 28 U.S.C. § 1291, we affirm the district court’s decision.
I
In June 2006, Jack and Kay Jones entered into an agreement to sell roughly
10,000 acres of land in Barber County, Kansas to KP&H, a Delaware Limited
Liability Company based in San Diego, and Brad Penny, a citizen of Florida
(collectively “KP&H”). This agreement, known as the Definitive Purchase
Agreement (“DPA”), consisted of three documents: the Purchase Agreement, the
Addendum to the Purchase Agreement and Joint Escrow Instructions (“First
Addendum”), and the Second Addendum to the Purchase Agreement and Joint
Escrow Instructions (“Second Addendum”). The issues in this appeal revolve
primarily around four provisions of the DPA: Section 7 of the Purchase
Agreement (“Section 7”), Section 13 of the Purchase Agreement (“Section 13”),
Section 3 of the First Addendum (“Section 3”), and Section 4 of the Second
Addendum (“Section 4”).
Under the terms of the DPA, KP&H was required to deliver an Earnest
Money Deposit (“Deposit”) equaling $300,000 to an escrow agent prior to the sale
of the property. The DPA then granted KP&H a 90-day period to inspect the
property and examine the title. Section 7 gave KP&H the right to physically enter
the property during this period “to inspect, examine, survey, and make test
-2-
borings, soil bearing tests, and any other soil or engineering tests or surveys
which Purchaser may deem necessary . . . .” This section states that “[a]t any
time period [before] the expiration of the Inspection Period, Purchaser may
terminate this Contract for any reason as a result of these inspections at the
Purchaser’s full and complete discretion.”
In Section 3, the First Addendum clarifies that after the end of the
inspection period, the Deposit would be transferred to the Jones. After the
inspection period, the Deposit would only be refunded to KP&H if the Jones
defaulted or failed to satisfy their obligations under the contract.
Section 13.1 discusses the possibility of default by either of the parties. If
KP&H defaulted, the Jones were “entitled to retain the [Deposit] as liquidated
damages and in full settlement of any claims or damages, except with respect to
such provisions of Section 7 and 12.2.” 1 Further, the parties agreed that “without
resale, Seller’[s] damages may be difficult to ascertain and that the [Deposit]
constitutes a reasonable liquidation thereof . . . .” If the Jones defaulted,
however, KP&H was entitled to the return of the Deposit without any prejudice to
its right to seek other kinds of relief, pursuant to Section 13.2.
1
The reference to Section 12.2 was removed by the First Addendum
because there is no Section 12.2 in the DPA.
-3-
In the event of a dispute between the parties, the DPA included a choice of
venue clause, which provided for two different venues depending on the nature of
the dispute. Section 4 states that
(a) any dispute arising out of or relating to Buyer’s Deposit or
Earnest Money Deposit, or the release, failure to release,
refund, return or collection of the same to or by Buyer shall be
tried and litigated exclusively in the State and Federal Courts
located in San Diego County, California . . . .
(b) any dispute arising out of or relating to the purchase and
sale of the Property shall be tried and litigated exclusively in
the State and Federal Courts located in Barber County, Kansas .
...
In addition to the DPA, the parties entered into a separate agreement with
an escrow agent (the “Escrow Deposit Agreement”), containing instructions for
the delivery and release of the Deposit. Under the terms of the Escrow Deposit
Agreement, if
the purchase and sale of the property is not consummated for
any reason permitting a termination of the [DPA] other than a
default under the [DPA] by Purchaser, the Deposit shall be
refunded to Purchaser without any requirement of additional
instruction from Seller . . . . Upon such termination, no party
to this Agreement shall have any further right or obligation to
the other.
On October 25, 2006, five days before the end of the inspection period,
KP&H sent a letter to the Jones, notifying them that it was terminating the DPA
and demanding refund of the Deposit. A copy of this letter was also sent to the
escrow agent. In the letter, KP&H stated that it was terminating the agreement in
-4-
accordance with Section 7 “as a result of Buyer’s due diligence investigation and
inspections of the Property, and disapproval thereof.” The letter then directed the
escrow agent to return the Deposit to KP&H, which the agent did.
The Jones filed a breach-of-contract suit against KP&H in Kansas state
court approximately one month later. They claimed that under Section 7 of the
DPA, KP&H could only terminate the agreement as a result of the inspections
specified in that section, that KP&H had never conducted any of the enumerated
tests, and that KP&H had thus violated these terms of the contract. As relief, the
Jones sought specific performance, return of the Deposit, or liquidated damages in
the amount of $300,000. They also requested an additional $75,000, reflecting
the cost of forbearance.
KP&H removed the case to the United States District Court for the District
of Kansas and moved to dismiss for improper venue under Federal Rule of Civil
Procedure 12(b)(3). In its motion, KP&H directed the court’s attention to Section
4 and argued that because the Jones’ dispute related to the disposition of the
Deposit, venue was proper only in San Diego County, California. 2
The district court agreed with KP&H and granted the motion to dismiss.
Applying the venue provision of the agreement, the court reasoned that Barber
2
Alternatively, KP&H urged dismissal for failure to state a claim under
Rule 12(b)(6) because the Jones failed to allege that it had breached the terms of
the contract. The Jones, in turn, sought remand to the state court. Because the
district court determined that venue was not proper in Kansas, it did not rule on
either of these arguments.
-5-
County was not the proper venue because the dispute did not arise out of or relate
to the sale or purchase of the property as no sale had occurred. It also noted that
the Jones’ requested relief involved retention of the Deposit under Section 13.1’s
liquidated damages clause, and that the dispute therefore concerned the Deposit.
Accordingly, it ruled that venue was proper in San Diego County. The Jones
appeal.
II
Review of dismissal for improper venue based on a contract’s choice of
venue clause presents a question of law which we consider de novo. See Riley v.
Kingsley Underwriting Agencies, Ltd., 969 F.2d 953, 956 (10th Cir. 1992); see
also SBKC Serv. Corp. v. 1111 Prospect Partners, L.P.,
105 F.3d 578, 581 (10th
Cir. 1997) (matters of contract interpretation are reviewed de novo). 3 We use the
same standard applied to dismissals for failure to state a claim. See Phillips v.
Audio Active Ltd.,
494 F.3d 378, 384 (2d Cir. 2007); see also Nazaruk v. eBay,
Inc., 223 Fed. App’x 815, 816 (10th Cir. May 15, 2007) (unpublished). 4 That is,
3
Although the parties refer to Section 4 as a “forum selection clause,” we
deem it more properly termed a “choice of venue clause” or “venue provision,”
and refer to it as such. See SBKC, 105 F.3d at 582 (clarifying that the term
“forum selection clause” refers only to “agreements which clearly confine
litigation to specific tribunals,” as opposed to specific venues which may contain
multiple acceptable tribunals (emphasis added)).
4
Unpublished cases are not precedential, but may be cited for their
persuasive value. 10th Cir. R. 32.1. We cite Nazaruk for its persuasive value
only.
-6-
we accept “all well-pleaded allegations as true and view[] them in the light most
favorable to the plaintiff.” Lane v. Simon, 495 F.3d 1182, 1186 (10th Cir. 2007).
Because the DPA provides that Kansas law governs the construction of its
terms, we apply Kansas substantive law to this case. Yavuz v. 61 MM, Ltd., 465
F.3d 418, 427-28 (10th Cir. 2006). Under Kansas law, “[t]he cardinal rule of
contract construction requires courts to determine the parties’ intent from the four
corners of an instrument by construing all provisions together and in harmony
with each other rather than by critical analysis of a single or isolated provision.”
Town Ctr. Shopping Ctr., LLC v. Premier Mortgage Funding, Inc.,
148 P.3d 565,
572 (Kan. Ct. App. 2006). Kansas courts favor reasonable over unreasonable
interpretations of the contract and “[r]esults which vitiate the purpose or reduce
the terms of a contract to an absurdity should be avoided.” Kan. State Bank &
Trust Co. v. DeLorean,
640 P.2d 343, 349 (Kan. Ct. App. 1982). In this case, we
consider the unified intent behind both the DPA and the Escrow Deposit
Agreement because instruments that were “executed by the same parties at or near
the same time in the course of the same transaction and concern the same subject
matter . . . will be read and construed together.” In re Villa West Assoc.,
146
F.3d 798, 803 (10th Cir. 1998) (citing Akandas, Inc. v. Klippel,
827 P.2d 37, 51
(Kan. 1992)).
The parties do not dispute the binding effect of the venue provision; they
question only its proper interpretation. Section 4(a) states that San Diego County
-7-
is the exclusive venue for litigating disputes “arising out of or relating to the
[Deposit], or the release, failure to release, refund, return or collection of the
same to or by the Buyer.” Under Section 4(b), Barber County is the exclusive
venue for disputes “arising out of or relating to the purchase and sale of the
Property.” The essential question is whether the Jones’ breach-of-contract claim
is best characterized as “arising out of or relating to” the proper disposition of the
Deposit or the sale of the property.
The Jones claim that because the DPA governs the sale of the property, all
disputes based upon provisions in the DPA necessarily arise out of or relate to the
sale and fall under Section 4(b); by contrast, only disputes based upon terms in
the Escrow Deposit Agreement can properly be characterized as relating to the
Deposit under Section 4(a). KP&H disagrees, contending that the parties
intended for all disputes arising before the sale to be litigated in San Diego
County, and all disputes arising after the sale to be litigated in Barber County,
where the property is located. Although the parties’ representations regarding
their intent are certainly relevant to our analysis, in this case neither party
presents an interpretation of the contract that construes all the provisions in
harmony and avoids reducing particular terms to an absurdity. Based upon our
independent reading of the contract, we conclude that this dispute arises out of
the release of the Deposit, and that venue is proper in San Diego County. We
-8-
begin with the plain language of the contract, and then turn to the parties’
proposed interpretations.
A
The Jones claim that KP&H breached the contract by improperly
terminating the transaction before the end of the inspection period. Although the
DPA does not explicitly address the consequences of an improper termination
during the inspection period, it does discuss proper terminations during this
period and all other terminations after this period. From these provisions, we
determine that the parties intended to limit the scope of particular disputes arising
out of KP&H’s termination prior to the sale of the property, such that the only
matter to be resolved between the parties would be the proper disposition of the
Deposit. This particular case falls within that set of disputes.
Under the terms of the contract, a proper termination by KP&H before the
end of the inspection period would result in the return of the Deposit to KP&H.
Section 7 permits KP&H to terminate the contract “[a]t any time period [before]
the expiration of the Inspection Period.” The Escrow Deposit Agreement, which
we construe in conjunction with the DPA, Akandas, 827 P.2d at 51, states that if
“the purchase and sale of the Property is not consummated for any reason
permitting a termination of the [DPA] . . . the Deposit shall be refunded to
Purchaser . . . .” In addition, in the title examination provision of the DPA,
KP&H reserved the right to terminate prior to the expiration of the inspection
-9-
period if it found any uncorrectable defects in the title. Upon such termination
“Escrow Agent shall immediately return to Purchaser the [Deposit].”
Consequently, upon a proper termination, either for the reasons permitted in
Section 7 or for a defect in title, KP&H would receive the Deposit from the
escrow agent.
Once the Deposit was returned, the agreement would terminate and the
parties would have no further obligations to each other. Both the title
examination provision and the Escrow Deposit Agreement state that upon
termination, “no party . . . shall have any . . . further rights or obligations” to the
other. Reading the DPA and the Escrow Deposit Agreement together, we
conclude that upon a proper termination by KP&H before the end of the
inspection period, the parties intended for the Deposit to be returned to KP&H
immediately and without dispute.
If, however, KP&H terminated the agreement under any other
circumstances, but prior to the consummation of the sale, the Jones would receive
the Deposit. This conclusion is supported by language in Section 13.1, Section 3,
and the Escrow Deposit Agreement. Under Section 13.1, termination by KP&H
before the sale would result in the agreement becoming “null and void and of no
further force or effect,” and the Jones would take the Deposit “in full settlement
of any claims or damages.” Section 3 provides that, after the end of the
inspection period, the Deposit will be not be refunded to KP&H if it breaches the
-10-
DPA. The Escrow Deposit Agreement only allows return of the Deposit to KP&H
if it terminated for a reason “other than a default under the [DPA] by Purchaser.”
By contrast, if the Jones defaulted at any point in time, under Section 13.2 the
Deposit would be refunded to KP&H “without prejudice to any other rights or
remedies of Purchaser, including without limitation, the right to seek specific
performance of this Agreement.”
Taken together, it is clear that the parties intended to limit the scope of
disputes arising out of KP&H’s presale termination. Although the Jones
emphasize that KP&H terminated the contract improperly prior to the end of the
inspection period, a claim which is not specifically addressed by the DPA, the
most reasonable interpretation of the contract turns on which party terminated and
when. So long as KP&H terminated the contract prior to sale, the only matter to
be resolved between the parties was the proper transfer of the Deposit. In
contrast, other types of disputes, perhaps arising out of a presale termination by
the Jones or a postsale breach by either party, would not be so limited in scope,
and might reasonably fall under Section 4(b)’s more general language. In light of
this intent, we determine that Section 4(a) governs the dispute at issue here,
which arose out of a presale termination by KP&H. Because Section 4(a)
controls, venue is proper in San Diego County.
B
-11-
The parties have each proposed alternative interpretations of the contract,
but these proposals are inconsistent with the language and intent of the DPA. The
Jones assert that the parties intended for all disputes arising out of provisions in
the DPA to be litigated in Barber County and that only disputes arising out of the
Escrow Deposit Agreement would be litigated in San Diego County. They
contend that the Escrow Deposit Agreement exclusively governs the “release,
refund, return and collection” of the Deposit, as those terms are used in Section
4(a). By contrast, they argue, the DPA contains “contractual terms” that
necessarily relate to the “purchase and sale” of the property, to which Section
4(b) applies. Because their claim arises out of an alleged breach of Section 7 of
the DPA, the Jones maintain that Section 4(b) controls, and that venue is proper
in Barber County.
This interpretation, however, conflicts with the plain language of the
contract. Provisions governing the “release” and “refund” of the Deposit are not
confined solely to the Escrow Deposit Agreement; they are also scattered
throughout the DPA. For example, Section 3 of the DPA states that at the end of
the inspection period, the escrow agent “shall immediately release to Seller” the
full amount of the Deposit (emphasis added). If, however, the seller defaults, the
Deposit “will be refunded to Buyer . . . ” (emphasis added). Additionally, in a
section of the DPA governing proper title, KP&H reserved the right to terminate
the agreement for any title defects, “whereupon the Escrow Agent shall
-12-
immediately return” the Deposit to KP&H (emphasis added). Under the Jones’
theory, these provisions, which explicitly involve the release and refund of the
Deposit, would not fall under the “release” and “refund” language of Section 4(a).
Because the Jones’ interpretation conflicts with the plain language of the contract,
it is necessarily unreasonable. See DeLorean, 640 P.2d at 349.
In a related argument, the Jones urge us to focus on the nature of their
cause of action, which they characterize as a suit for breach of a sale contract.
Because the breach “relates to” the sale of the property, they contend that venue
is proper in Barber County. While it is true on a general level that any breach of
the DPA “relates to” the sale, such a broad interpretation would render Section
4(a) meaningless. Principles of Kansas contract law prevent us from reading
Section 4(a) completely out of the contract. See DeLorean, 640 P.2d at 349.
Moreover, under the rule of ejusdem generis, we must interpret general provisions
in light of more specific provisions in a contract. See Smith v. Russ,
339 P.2d
286, 291 (Kan. 1959); Exch. State Bank v. Kan. Bankers Sur. Co.,
177 P.3d 1284,
1285 (Kan. Ct. App. 2008). In other words, Section 4(b)’s language regarding
disputes “arising out of or relating to the purchase and sale of the Property” must
refer to disputes other than those falling under the more specific provisions of
Section 4(a).
KP&H suggests that the application of the venue provision turns on the
consummation of the sale, with all presale disputes being litigated under Section
-13-
4(a) and all postsale disputes under Section 4(b). In support of its argument,
KP&H directs us to Section 13.1, which sets liquidated damages for any breach
by KP&H made prior to the sale. This section states that “[i]f the transaction
contemplated herein is not consummated because of a default of Purchaser . . .
Seller shall be entitled to retain the [Deposit] as liquidated damages and in full
settlement of any claims or damages . . . .” Because the Jones’ sole remedy for
any breach of contract occurring before the sale was the Deposit, KP&H asserts
that all such pre-sale disputes relate to the proper disposition of the Deposit and
should be litigated in San Diego County.
The Jones counter that venue cannot depend on the remedy they sought,
which included, among other things, the Deposit or the value of the Deposit as
liquidated damages. In support of their argument, they cite a case holding that
the application of a statute of limitations may not turn on the remedy requested.
Four B Corp. v. Daicel Chem. Indus., Ltd., 253 F. Supp. 2d 1147, 1155 (D. Kan.
2003). They do not offer an authority, however, that prohibits parties from
writing a contract in which venue turns on the remedy. Moreover, we see no
reason why parties could not write such a contract. As a general matter, parties
are free to adopt any contract terms they wish, so long as these terms are not
illegal, contrary to public policy, or the result of fraud. See Augusta Med.
Complex, Inc. v. Blue Cross of Kan., Inc.,
608 P.2d 890, 895 (Kan. 1980). In
some instances, they may even agree to terms that conflict with statutory
-14-
requirements, and Kansas courts will give effect to their agreement rather than the
statute. See In re Estate of Sauder, 156 P.3d 1204, 1214 (Kan. 2007). As a
matter of policy, we do not conceive of any reason why courts should prohibit
parties from making venue provisions contingent on the remedy sought. See
Stephan v. Goldinger,
325 F.3d 874, 878 (7th Cir. 2003) (holding that contractual
venue clauses “generally are valid”). “Venue is not a substantive right, but is a
procedural matter designed for the convenience of the litigants,” 77 Am. Jur. 2d
Venue § 1, and courts have previously allowed parties to contract similar
procedural matters. See Carnival Cruise Lines, Inc. v. Shute,
499 U.S. 585, 591-
95 (1991); Milk ‘N’ More, Inc. v. Beavert,
963 F.2d 1342, 1346 (10th Cir. 1992).
The Jones argue that even if venue clauses that turn on remedy are
enforceable, this particular contract is not susceptible to such an interpretation.
They assert that if all presale disputes “relate to” the Deposit, then there would be
no circumstance under which Section 4(b) would apply, rendering that provision a
“nullity.” 5 We agree that a liquidated damages clause restricting the available
remedy, standing alone, would not necessarily control our interpretation of
5
The Jones also claim that Section 3 of the First Addendum implicitly
negated Section 13.1’s liquidated damages provision. Our reading of the contract
does not reveal anything contradictory in these two provisions. Moreover,
Section 15 of the First Addendum removed specific portions of Section 13.1 but
did not strike the language regarding liquidated damages. Had the parties
intended to rescind the damages provision in Section 13.1, they likely would have
done so explicitly.
-15-
Section 4. 6 But in this case, the questions of remedy and venue are intertwined,
as the parties clearly intended to limit the available remedies depending on the
nature of the dispute and also intended to assign venue based upon the nature of
the dispute. “[C]onstruing all provisions together and in harmony with each
other,” Town Ctr. Shopping Ctr., 148 P.3d at 572, we conclude that the parties
intended to limit the scope of particular disputes, such that the only question
between them was the disposition of the Deposit. Because the Jones’ particular
claims fall within this set of disputes, Section 4(a) applies, and venue is therefore
proper in San Diego County, California.
III
For the foregoing reasons, we AFFIRM the dismissal for improper venue.
ENTERED FOR THE COURT
Carlos F. Lucero
Circuit Judge
6
KP&H’s argument that all presale disputes would be litigated in San
Diego County is inconsistent with Section 13.2, which does not limit KP&H’s
remedies for a presale termination by the Jones.
-16-
No. 07-3246, Jones v. KP&H, LLC, et al.
BRISCOE, Circuit Judge, dissenting:
I respectfully dissent. In my view, the choice of venue clause contained in
the parties’ Definitive Purchase Agreement (DPA) clearly requires the Jones’
breach-of-contract claim to be “tried and litigated” in “Barber County, Kansas.”
Therefore, I would reverse the judgment of the district court and remand the case
with directions to grant the Jones’ motion to remand the proceedings to the
Kansas state court in which they were originally filed.
I.
Central to this appeal is the proper interpretation of the choice of venue
clause set forth in Section 4 of the Second Addendum to the Purchase Agreement
and Joint Escrow Instructions. That clause states:
4. Jurisdiction and Venue for Dispute Resolution. Notwithstanding
anything to the contrary set forth in the revised Draft Purchase
Agreement or the Escrow Agreement (including any hand marked or
initialed deletions or additions to the Escrow Agreement), (a) any
dispute arising out of or relating to Buyer’s Deposit or Earnest
Money Deposit, or the release, failure to release, refund, return or
collection of the same to or by Buyer, shall be tried and litigated
exclusively in the State and Federal Courts located in San Diego
County, California, and the parties hereby irrevocably consent to the
sole and exclusive jurisdiction thereof solely for such purpose, and
(b) any dispute arising out of or relating to the purchase and sale of
the Property shall be tried and litigated exclusively in the State and
Federal Courts located in Barber County, Kansas, and the parties
hereby irrevocably consent to the sole and exclusive jurisdiction
thereof solely for such purpose.
Aplee. App. at 28.
There is no dispute that this choice of venue clause was intended to
encompass any and all disputes arising between the parties. Thus, the Jones’
breach-of-contract claim necessarily has to fall within the scope of either
subsection (a) or (b) of the choice of venue clause. In other words, as the
majority notes, “[t]he essential question is whether the Jones’ breach-of-contract
claim is best characterized as ‘arising out of or relating to’ the proper disposition
of the Deposit or the sale of the property.” O&J at 8.
The majority resolves this question in a roundabout fashion. First, the
majority concludes, citing various provisions of the DPA and the Escrow Deposit
Agreement, “that the parties intended to limit the scope of disputes arising out of
KP&H’s presale termination.” O&J at 11. More specifically, the majority asserts
that “[s]o long as KP&H terminated the contract prior to sale, the only matter to
be resolved between the parties was the proper transfer of the Deposit.” O&J at
11. In turn, the majority concludes that because “the dispute at issue here . . .
arose out of a presale termination by KP&H,” “Section 4(a) governs” and “venue
is [thus] proper in San Diego County.” Id.
The key flaw in this analysis lies in the assumption that, in the event of a
so-called “presale termination” by KP&H, “the only matter to be resolved
between the parties was the proper transfer of the Deposit.” To be sure, the
provisions of the DPA cited by the majority make clear that the parties intended
(a) for the Deposit to be returned to KP&H “immediately and without dispute” in
-2-
the event that it properly terminated, and (b) for the Deposit to serve as a measure
of liquidated damages in the event that KP&H improperly terminated.
Importantly, however, in order to decide how the Deposit should be disposed of in
the event of a termination by KP&H, it must necessarily be determined whether
such termination was “proper” or “improper,” i.e., whether it was consistent with,
or in violation of, the terms of the DPA. Indeed, that very question lies at the
heart of this case -- the Jones assert that KP&H terminated in violation of the
DPA, while KP&H asserts that its termination was consistent with the terms of
the DPA – and will have to be determined at some point, by some court. Thus, it
is simply not true that “the only matter to be resolved between the parties” in the
event of a presale termination by KP&H is “the proper transfer of the Deposit.”
Returning to the plain language of the choice of venue clause, it is obvious
that the Jones’ breach-of-contract claim fits much more readily within the scope
of subsection (b) than subsection (a). The Jones’ breach-of-contract claim clearly
does not “arise out of” the Deposit, and only tangentially, at best, “relates to” the
Deposit (in the sense that the Deposit will serve as liquidated damages in the
event that the Jones prevail, or will be remain with KP&H in the event that
defendants prevail). Without question, however, the breach-of-contract claim
“arises out of” or “relates to” the “purchase and sale of” the Jones’ property. It is
undisputed that the parties entered into a written agreement regarding the
purchase and sale of the Jones’ property. Had KP&H completed the purchase
-3-
process, rather than terminating the agreement, the Jones would have suffered no
loss and would have had no claim. Thus, their breach-of-contract claim clearly
“arises out of” the purchase and sale of the property. Cf. Georgacarakos v.
United States, 420 F.3d 1185, 1186-87 (10th Cir. 2005) (construing similar
“arising out of” language in federal statute); Foos v. Terminix,
67 P.3d 173, 176
(Kan. Ct. App. 203) (construing similar “arising out of” language in Kansas
Workers Compensation Act). For the same reasons, the Jones’ breach-of-contract
claim obviously “relates to” the purchase and sale of the property. Consequently,
the breach-of-contract claim squarely falls within the scope of, and must be
governed by, subsection (b) of the choice of venue clause.
Although defendants argue that subsection (b) of the choice of venue clause
applies only in the event of a completed purchase/sale, they are mistaken. The
terms “purchase” and “sale” are employed as nouns in subsection (b) and, given
their plain and ordinary meaning, encompass the entire act of purchasing/selling.
See Anderson v. Dillard’s Inc., 153 P.3d 550, 554 (Kan. 2007); Schartz v. Kansas
Health Ins. Ass’n,
66 P.3d 866, 869 (Kan. 2003). More specifically, the term
“purchase,” when used as a noun, refers to “[t]he action or an act of purchasing
something.” Oxford English Dictionary (Draft Revision Mar. 2008). Similarly,
the term “sale,” when used as a noun, refers to “[t]he action or an act of selling or
making over to another for a price . . . .” Oxford English Dictionary (2d ed.
1989). Rather than focusing on a completed transaction, both terms encompass
-4-
all of the actions inherent in or necessary to purchasing or selling something.
Thus, subsection (b) of the choice of venue clause does not, as suggested by
defendants, apply only in the event of a completed purchase/sale. 1
Consistent with the notion that subsection (b) of the choice of venue clause
was intended to encompass a broad range of disputes “arising out of” or “relating
to” the purchase/sale of the property, it is readily apparent that subsection (a) was
intended to more narrowly encompass claims directly relating to the Earnest
Money Deposit. Not only does the plain and unambiguous language of subsection
(a) lead to this conclusion, a review of the Escrow Deposit Agreement confirms
this construction. Paragraph 10 of the Escrow Deposit Agreement provides that
“[a]ny dispute arising out of or relating to this Agreement [i.e., the Escrow
Deposit Agreement] . . . shall be tried and litigated exclusively in the State and
Federal Courts located in San Diego County, California . . . .” Id. at 33. This
language, which was obviously intended to be consistent with the DPA’s choice
of venue clause, confirms that only disputes relating directly to the Earnest
Money Deposit were to be brought in San Diego County.
In sum, because the Jones’ breach of contract claim clearly falls within the
scope of subsection (b) rather than subsection (a) of the choice of venue clause,
1
Defendants’ proposed interpretation of the choice of venue clause would
place nearly every contractual dispute within the scope of subsection (a), and
would therefore render subsection (b), despite its plain language, all but
meaningless.
-5-
the district court should have denied defendants’ Rule 12(b)(3) motion to dismiss
and granted plaintiffs’ motion to remand the case to Barber County, Kansas,
where it was originally filed.
-6-
