Category: Forum Selection Clauses

Northern District Enforces Forum Selection Clause in Unsigned Contract

This case is worthy of attention for only one reason: the district court granted a motion to transfer the case to another district based on a forum selection clause in an agreement, which neither party signed.

Leon’s Auto Sales sued the defendants alleging that they engaged in the unauthorized practice of law and violated the Illinois Consumer Fraud and Deceptive Practices Act. The Defendants removed the case on diversity of citizenship and moved to dismiss for lack of personal jurisdiction, venue ¬†and failure to state a claim. The District Court reached only one argument: the motion to dismiss for improper venue.

Leon’s Auto Sales sent two representatives to attend an industry conference. A lawyer affiliated with the defendants urged Leon’s to hire a law firm to do a compliance audit. The defendants sent the form contract to Leon’s Auto Sales, but it was never signed. The court explains that, even though the contract was not signed, the defendants performed the compliance audit:

[An attorney affiliated with the Defendants] sent Leon’s a draft contract entitled “Compliance Audit Contract” and asked for a payment of $5,000. The draft contract contained a choice of law and forum selection clause stating that “[t]his Contract, and any arbitration or litigation arising therefrom, shall be governed by the law of the State of Florida. Proper venue shall, and Client agrees to be subject to, a court of competent jurisdiction for Sarasota County, Florida.” Def.’s Jt. Mot. to Dismiss, Ex. B.

Leon’s says that it did not sign the draft contract. In its complaint, however, Leon’s alleges that in late September 2013, Leedom sent [Debra] Dawn to Leon’s office in Chicago to perform the compliance audit Leon’s had requested. After the audit, Leedom sent Leon’s an invoice in the amount of $6,338.82 for the audit and related travel expenses, the amount called for by the contract. Leon’s says that it paid Leedom in full.

In November 2013, a customer named Marquita Purnell purchased a car from Leon’s. Leon’s says that it documented the purchase with a form contract that Dawn had reviewed during the compliance audit. Purnell later sued Leon’s on the ground that the form contract violated the Federal Truth in Lending Act. After these events, attorneys for Leon’s reviewed the form contract that Dawn had reviewed and discovered the contract did not comply with several state and federal laws. Leon’s subsequently filed this suit.

In response to the motion, Leon’s Auto Sales alleged that it never signed the contract so the contract was not binding. The district court disagreed. It explained:

As indicated earlier, Leon’s contends that the contractual forum selection provision is unenforceable because it never executed the contract. But a written contract does not necessarily have to be signed in order to be binding on the contract’s parties. Whether an unsigned writing constitutes a binding contract depends on the parties’ intention, and a party’s assent to an unsigned writing’s terms can be shown in other ways, including by the party’s conduct. See Hedlund & Hanley, LLC v. Bd. of Trs. of Cmty. Coll. Dist. No. 508, 376 Ill. App. 3d 200, 206, 876 N.E.2d 1, 6 (2007). “[A] party named in a contract may, by his acts and conduct, indicate his assent to its terms and become bound by its provisions even though he has not signed it.” Landmark Props., Inc. v. Architects Int’l-Chicago, 172 Ill. App. 3d 379, 383, 523 N.E.2d 603, 606 (1988) (parties were bound by conduct to the terms of an unsigned contract because correspondence indicated that all services were performed and payment would be forthcoming). Similarly, under Florida law, unsigned contracts and their terms are binding where both parties have performed under the contract. Sosa v. Shearform Mfg., 784 So. 2d 609, 610 (Fla. Dist. Ct. App. 2001); Gateway Cable T.V., Inc. v. Vikoa Constr. Corp., 253 So. 2d 461, 463 (Fla. Dist. Ct. App. 1971).

The court concluded that the contract was in effect and was binding because both parties acted in accordance with the contract and acted as if it was binding. The takeaway point here is that in some circumstances an unsigned contract can be binding.

Edward X. Clinton, Jr.

Source: LEON’S AUTO SALES, INC. v. LEEDOM AND ASSOCIATES, LLC, Dist. Court, ND Illinois 2015 – Google Scholar